S&P Global Ratings and DBRS on Oct. 7 took ratingsactions on Deutsche BankAG, amid uncertainty around an RMBS settlement with the U.S.Department of Justice.
S&P affirmed Deutsche Bank's ratings with a negativeoutlook, saying the bank has adequate financial flexibility to absorb theexpected U.S. settlement. However, its , including theU.S. settlement, is expected to surpass what has already been provisioned oridentified.
The bank reported €5.5 billion in aggregate litigationprovisions as of June 30 and identified a further €1.7 billion unreservedcontingent litigation liability. S&P believes the bank willhave to book additional charges, in addition to the provisions and thecontingent liability.
Commenting about the size of the expected U.S. settlement,S&P said it will be materially smaller than the U.S. Department of Justice's$14 billion initialnegotiating position. Deutsche Bank is looking to pay between $4 billion and $5billion to U.S. authorities by the end of October to resolve litigation overallegations that it missold RMBS, Reuters reported Oct. 4, citing Germanmarkets newsletter Platow Brief.Before that, the lender was reported to be nearing a $5.4 billion settlement with the U.S.
Nevertheless, the rating agency noted that Deutsche Bank'scapital and earnings are adequate.
The lender's main challenge is the restructuring of itsbusiness model to achieve stronger earnings and capital, something it is nowcatching up on via its Strategy 2020. However, market volatility surroundingDeutsche Bank in the past three weeks did not help the execution of thatstrategy, S&P said.
S&P affirmed the bank's BBB+/A-2 counterparty creditratings, with a negative outlook. At the same time, the agency affirmed theratings on Deutsche Bank's debt issues and affirmed the counterparty creditratings on certain related entities.
Separately, DBRS confirmed the following ratings of DeutscheBank: Its senior unsecured debt and deposits rating of A (low), its short-termdebt and deposits rating of R-1 (low), and its A (high)/R-1 (middle) criticalobligations ratings. At the same time, the trend on all ratings was revised tonegative, with the exception of the short-term debt and deposits rating, forwhich the trend remains stable.
The outlook revision reflects DBRS' view of mountingpressure on the lender's credit fundamentals, being driven by weakened marketconfidence. However, the bank continues to maintain a strong liquidity profile,DBRS noted.
S&P Global Ratings and S&PGlobal Market Intelligence are owned by S&P Global Inc.