Moody’s doesn’t seem to have faith in Deutsche Bank’s turnround plan and so has downgraded the rating on its unsecured debt.
Senior unsecured debt now has a Baa2 rating, down from Baa1
The credit rating agency, citing the German lender’s recent weak performance, said it faces challenges “including continuing low interest rates and macroeconomic uncertainty”.
Responding Chief Executive John Cryan told Bloomberg he was “very disappointed” adding his bank has never had more capital and could easily repay its debt many times over.
A five-year turnaround plan at Deutsche Bank includes 9,000 job cuts, asset sales and cost reductions.
Moody’s did say its outlook on ratings is stable, reflecting potential long-term benefits to creditors of that five-year strategy plan.
It added the stable outlook reflects the actions taken by Deutsche Bank’s management team to preserve capital and liquidity during the restructuring process.
Unhappy shareholders, ongoing legal woes
Deutsche Bank recently drew scathing criticism from shareholders at its annual general meeting.
They were unhappy over its dramatic share price decline, costly legal wrangles and public squabbling among its directors.
CEO John Cryan warned shareholders he expects further significant legal charges this year. Deutsche Bank has already set aside provisions of 5.4 billion euros to settle pending litigation.
“Litigation expenses of this magnitude are completely unacceptable,” Cryan said, to broad applause from shareholders.
Claims filed by individuals, companies and regulators against Deutsche have related to mis-selling of subprime loans and manipulation of foreign exchange rates or gold and silver prices. Other lawsuits were over the rigging of borrowing benchmarks Libor and Euribor.
Cryan has said he hopes to have settled Deutsche’s main legacy legal problems by later this year but new suits are still cropping up.
Decade of mismanagement
“After a decade of mismanagement, Deutsche Bank is today a restructuring case,” said Ingo Speich of large shareholder Union Investment.
“The share price is a disaster,” Speich added, pointing out that Deutsche’s current market capitalization of around 20 billion euros is less than the sum of the three capital increases it undertook since the financial crisis.
Shareholder speeches reserved most of their ire for previous management, while Cryan, a Briton who took over as chief executive last July, won backing as the right man – along with his newly installed executive team – to restore Deutsche Bank’s earnings prowess.