Deutsche Bank and its biggest investor sought to reassure shareholders and staff of its financial strength after a ratings downgrade on Friday questioned its ability to implement a plan to return to profitability.
Shares in the bank closed at an all-time low on Thursday as past misadventures in high-risk investment banking stymied the new chief executive Christian Sewing’s attempt to refocus on its more staid corporate banking roots.
A source familiar with the thinking of the European Central Bank, which regulates Deutsche Bank, and its top shareholder HNA Group of China, said they backed the management’s strategy of retrenchment.
This followed a report on Thursday in the Wall Street Journal that the US Federal Reserve viewed the lender as troubled last year, and on Friday Standard & Poor’s downgraded Deutsche’s credit rating from A- to BBB+.
In Australia, federal prosecutors are preparing criminal cartel charges against Deutsche, ANZ and Citigroup, over a A$2.3bn (£1.3bn) share issue. All deny wrongdoing.
Sewing, a Deutsche Bank “lifer” appointed in April after the removal of chief executive John Cryan, said in a letter to staff: “At group level, our financial strength is beyond doubt.”
But the newsflow was not good, Sewing added, as S&P questioned his ability to get the bank back to profit after three years of losses by scaling back its global investment bank and refocusing on Europe and Germany.
“We see significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop, and we think that, relative to peers, Deutsche Bank will remain a negative outlier for some time,” S&P said.
Credit ratings are especially crucial for banks, whose perceived health is important in winning business and Deutsche Bank is a big issuer of ratings-sensitive debt securities.
S&P had rated Deutsche’s long-term credit at A- on negative credit watch. That was one or two notches below most European competitors, with Switzerland’s UBS rated A+ with a stable outlook.
Sewing also addressed US regulatory concerns following the report that said the Fed had designated Deutsche Bank’s operations as in a “troubled condition”.
The WSJ report sent Deutsche’s shares down 7% on Thursday to their lowest-ever closing level, valuing it at $22bn (£16.5bn). They recovered by 4% on Friday.
Sewing said the bank’s credit and market risk levels had rarely been so low, speculation that it was exposed to political uncertainty in Italy was unfounded, and funding plans for this year were well advanced.
Deutsche Bank was also well positioned to react to excessive moves in debt markets, Sewing said, adding that a series of enforcement actions by the Fed were principally related to weaknesses in internal controls and infrastructure.