Moody's downgrades Deutsche Bank's credit rating

Moody’s Investors Service has downgraded Deutsche Bank’s credit rating for the second time this year, citing increased risk to the bank’s ability to successfully execute its ambitious turnaround plan.

Late on Monday, the agency cut the rating on Deutsche’s unsecured senior debt to Baa2 from Baa1 and downgraded the bank’s long-term deposit rating to A3 from A2.

"Deutsche Bank's new management team is executing in a disciplined way, but the headwinds have stiffened, reducing the firm's operating flexibility", said Peter Nerby, a Moody's senior vice president.

“These challenges have been evident in revenue pressures facing Deutsche Bank over the past two quarters. Looking ahead, continuing headwinds could limit management's ability to address one of the bank's key credit challenges - to improve its structurally weak profitability and internal capital generation by 2018. Moody's estimates that the firm is unlikely to achieve its targeted profitability improvements unless there is a material and sustained improvement in the operating environment.”

Moody’s kept its outlook on DB at 'stable', which it said reflected the potential long-term benefits to creditors of the bank’s five-year strategy plan through 2020 once achieved.

The stable outlook also reflects management's actions to preserve capital and liquidity during the restructuring process, such as suspending the dividend on its common stock and accelerating asset sales.

Moody’s said these were important to maintain prudent cushions above regulatory minimums if profit generation is limited in 2016 and 2017.