Fitch: Deutsche collateral insufficient to back AAA structured debt

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Deutsche Bank AG must add additional collateral to remain a swaps counterparty for AAA rated debt, Fitch Ratings warned Tuesday.

The announcement followed Fitch's downgrade of the German bank's issuer default ratings last week to BBB+ from A-; Fitch also cut Deutsche's short-term IDR to F2 from F1. It cited concerns that the bank will be unable to revive its growth prospects in the near term under a turnaround plan issued in March.

“Consequently,” Fitch noted last week, “we expect it to take some time before the bank will be able to deliver on earnings targets, including a post-tax return on tangible equity (RoTE) of around 10% in a more supportive interest rate environment.”

On Tuesday, the rating agency gave Deutsche 14 days to obtain additional capital.

Without the additional collateral or other remedial action by issuers employing Deutsche's German office as the trustee, Fitch could look to take ratings actions on the debt lacking an eligible swaps counterparty, according to Fitch structured finance ratings guidelines. The bank’s London office maintains its IDR and derivative counterparty ratings of A-, and would still be able to support double-A rated debt, according to Fitch.

Fitch also downgraded the German bank’s viability rating to ‘BBB+’ from ‘A-’; viability ratings are a component of the IDRs, and used in making international comparisons of issuer creditworthiness.

The downgrades “reflect continued pressure on Deutsche Bank’s earnings, combined with prolonged implementation of its strategy,” Fitch noted in the release last week. “We no longer expect revenue to demonstrate any clear signs of franchise recovery this year and we expect necessary further restructuring costs to continue to erode net income.”

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