(Repeat for additional subscribers)
May 23 (The following statement was released by the rating agency)
Fitch Ratings has assigned Deutsche Bank AG's (A+/Negative/a/F1+) undated
non-cumulative fixed to reset rate additional Tier 1 securities of 2014 a final rating of 'BB+'.
The rating is in line with the expected rating assigned on 2 May 2014.
KEY RATING DRIVERS
The notes are additional Tier 1 (AT1) instruments with fully discretionary
coupon payments and are subject to a write-down if Deutsche Bank breaches a
5.125% Basel III common equity Tier 1 (CET1) ratio. The trigger ratio is
calculated on a 'phased-in' basis under the EU capital requirement regulations
The notes are offered in three tranches: a EUR1.75bn 6% tranche (ISIN
DE000DB7XHP3), a USD1.25bn 6.25% tranche (ISIN XS1071551474) and a GBP650m
7.125% tranche (ISIN XS1071551391).
The notes are rated five notches below Deutsche Bank's 'a' Viability Rating
(VR), in accordance with Fitch's criteria for "Assessing and Rating Bank
Subordinated and Hybrid Securities". The notes are notched down twice for loss
severity to reflect the write-down on breach of the trigger, and three times for
relative non-performance risk.
The notching for relative non-performance risk reflects the notes' fully
discretionary coupons, which Fitch considers the most easily activated form of
The issuer will not make an interest payment if the payment, together with
payments made on other Tier 1 instruments, exceeds available distributable items
adjusted for interest expense on Tier 1 instruments, or if the authorities or
legislation prohibit the bank from making payments.
The bank calculates its available distributable items under German GAAP for the
parent bank. The available distributable items include net income and movements
from capital reserves (balance sheet profit) and free capital reserves and
retained earnings. Under the German commercial code, certain amounts related to
intangible assets, deferred tax assets and pension assets cannot be distributed,
reducing the available distributable items. At end-2013, the amount available to
Deutsche Bank for distribution to AT1 holders amounted to about EUR2.7bn. German
accounting standards allow the issuer to influence the amount of distributable
items somewhat (e.g. through dividends upstreamed from subsidiaries), and Fitch
expects the bank to manage its balance sheet profit to ensure that sufficient
amounts are available to make interest payments on the AT1 instruments.
The 5.125% trigger is on a phased-in basis, but even on a fully applied basis
the bank has a sizeable buffer above this trigger. The recently announced
capital increase of EUR8bn (see 'Fitch: Capital Increase to Aid Deutsche Bank's
Manoeuvrability') will improve Deutsche Bank's fully applied Basel III CET1
ratio to 11.8% from 9.5% at end-March 2014, providing a sizeable buffer of
around EUR25bn above 5.125%. However, we believe that loss absorption would
occur before a breach of the 5.125% trigger in the form of non-payment of
coupon, which under Fitch's criteria would be considered as non-performance. The
agency expects Deutsche Bank to become subject to capital regulation
restrictions on distributions, including distributions on AT1 instruments, if
and when it breaches its combined buffer requirements.
The announced capital increase will also result in a stronger buffer to a 9%
fully applied CET1 ratio of around EUR10bn. The ratio will face further pressure
in 2014 as new regulations are implemented and due to uncertainty around the
potential impact from ECB's upcoming asset quality review as well as any other
capital requirements potentially to come from European Banking Authority's
stress test. However, Fitch expects Deutsche Bank to maintain sound capital
ratios that provide a sufficient buffer to avoid restrictions on interest
payments on AT1 instruments.
The agency also expects that the bank will manage the amount of available
distributable items, which can be affected by management's decision on dividend
payments from subsidiaries, so that coupon payments will not be prohibited if
sufficient free capital resources are available within the group.
Fitch has assigned 50% equity credit to the securities. This reflects their full
coupon flexibility, the permanent nature and the subordination to all senior
As the notes are notched down from Deutsche Bank's VR, their rating is primarily
sensitive to any changes to this rating. Failure to improve underlying earnings
in 2014 would put Deutsche Bank's VR under pressure (for more details on the
main sensitivities see 'Fitch Revises Deutsche Bank's Outlook to Negative on
Support Expectations; Affirms at 'A+'', dated 26 March 2014 at
The notes' rating is also sensitive to any changes in notching, which could
arise if Fitch changes its assessment of the notes' non-performance risk
relative to that captured in Deutsche Bank's VR. This may reflect a change in
capital management, including capital management under German GAAP at the parent
bank, or an unexpected shift in regulatory buffers, for example.