Deutsche Bank says financial strength 'beyond doubt' after ratings downgrade

Jermaine Castillo
June 1, 2018

The report in yesterday's Wall Street Journal was followed today by a Standard & Poor's downgrade of Deutsche's credit rating to BBB+ from A-.

"At group level, our financial strength is beyond doubt", new CEO Christian Sewing said in a letter to staff.

Deutsche Bank shares fell 6 percent Thursday.

"The last few years were tough".

"Yes, our share price is at a historic low", Sewing said.

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"Many of you are sick and exhausted of bad news", Sewing said a letter to staff on Friday.

Turning to the downgrade, Sewing noted S&P's decision to keep a stable rating on Deutsche's outlook, reflecting the ratings agency's view that the bank's management was working towards a "better-functioning business model".

The lender recently announced that it would slash more than 7,000 jobs, focus its investment banking on European clients, and do more to control costs.

Deutsche Bank's US business was put on a Federal Reserve list of problem banks and added to a group of troubled lenders monitored by the country's deposit insurance regulator, according to a person familiar with the matter, compounding the challenges for its new Chief Executive Officer Christian Sewing.

"The bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring", the ratings agency said.

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Previous chief executive John Cryan was unceremoniously dumped earlier this year by Paul Achleitner, the bank's chair, as he seemed unable to cut costs and stem three consecutive years of losses. As you know, we have made progress in remediating them in the past year. "We're not yet where we want to be, but we are steadily getting there".

The S&P downgrade and looming Australian charges come less than 24 hours after the Wall Street Journal reported that the Federal Reserve a year ago labelled Deutsche Bank's USA arm as in a "troubled condition". S&P said the "deeper restructuring" entails a "non-negligible execution risks".

"In this respect, there's good news in the bad: they trust us to succeed with the change which is required", Sewing wrote.

A spokesperson for Deutsche Bank confirmed to Business Insider that the bank expects to be charged and said: "Deutsche Bank intends to vigorously defend those charges".

Sewing said this month he would reduce global staff by more than 7,000, including 25% of the global equities business.

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