Fitch Ratings on Oct. 7 revised the outlook on Commerzbank AG's BBB+ long-term issuer default rating to negative from stable, saying the German lender is facing material execution risks in its bid to strengthen its business model amid a substantial weakening of the economy's outlook.
The rating agency said the negative outlook reflects its view that Commerzbank's asset quality, capital levels and funding and liquidity profile have the capacity to support the lender's ratings through its extended restructuring period of weak profitability.
The negative outlook also reflects a limited margin of safety for Commerzbank, given its management's history of variable strategic execution, challenges from Germany's highly competitive banking sector and a turning credit cycle, Fitch added.
Commerzbank's issuer default ratings and viability rating will be downgraded if its common equity Tier 1 ratio declines to below its 12% minimum target, Fitch said, adding that the ratings will also be lowered if the lender's strong funding and liquidity deteriorates.
Alternatively, Fitch said it will revise the outlook on Commerzbank to stable if the lender makes clear progress in strengthening its business model, which could be indicated by marked progress in cutting costs, improved revenue regeneration and the integration of unit comdirect bank AG following the acquisition of outstanding shares.
Fitch affirmed Commerzbank's F1 short-term issuer default rating, "bbb+" viability rating, BBB+ senior unsecured debt rating, 5 support rating, No Floor support rating floor and A-(dcr) derivative counterparty rating.
