March 13, 2017 / 4:30 PM / 5 months ago

Fitch Upgrades Postbank to 'A-'/Negative on Deutsche's Restructuring Announcement

(The following statement was released by the rating agency) FRANKFURT/LONDON, March 13 (Fitch) Fitch Ratings has upgraded Deutsche Postbank AG's (PB) Long-Term Issuer Default Rating (IDR) to 'A-' from 'BBB+' and Short-Term IDR to 'F1' from 'F2'. The Outlook on the Long-Term IDR is Negative. PB's Support Rating (SR) has been upgraded to '1' from '2'. The bank's Viability Rating (VR) is unaffected. A full list of rating actions is at the end of this rating action commentary. The rating actions reflect the announcement on 5 March 2017 by PB's parent, Deutsche Bank AG (DB, A-/Negative/F1/a-), that it is abandoning its plans to sell PB. As a result, DB intends to retain and reintegrate PB into its own German retail banking business. A separate rating action commentary outlining the rating actions on DB is available at www.fitchratings.com. KEY RATING DRIVERS IDRS, SR AND SENIOR DEBT The upgrade of PB's SR and the equalisation of its IDRs and senior debt ratings with those of DB reflect our view that PB will regain its former status as a core business under DB's revised strategy. We understand from the announcement that DB intends to eventually fully integrate PB into its own German operations within its Private & Commercial Bank segment during the next few years. In our opinion, this should result in an extremely high probability of support from DB, if needed. We believe that PB is likely to play an integral role in realising DB's revised business objectives including a repositioning in German retail banking, operational synergies and cost optimisation. We also understand that existing regulatory limitations to funding fungibility between DB and PB are likely to be lifted as a result of PB's reintegration into DB. The announced strategic revision marks the second reversal of DB's strategic approach to PB, after it decided in 2015 to prepare a sale of its subsidiary. Therefore, we believe that future material deviations from this strategy are highly unlikely given the potential severe reputational damage to DB that could result from another strategic shift. This underpins our view that DB's commitment to PB's strong integration is hardly reversible. We view the control and profit and loss transfer agreement between PB and DB via PB's intermediate parent, DB Finanz-Holding GmbH, as a strong indication of institutional support. Following the strategic revision, the previously planned termination of the agreement, which has been in place for several years, now appears highly unlikely. DEPOSIT RATINGS The upgrade of PB's Deposit Ratings mirrors the IDRs' upgrade. We have not notched up its Deposit Ratings from its IDRs due to the uncertain sustainability of PB's qualifying subordinated and senior vanilla debt buffer given the bank's deposit-focused funding mix. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The legacy hybrid capital securities, issued by Deutsche Postbank Funding Trust I-IV and subject to phasing-out under the EU's Capital Requirements Regulation, are notched twice for non-performance risk and twice for loss severity from DB's VR, reflecting our expectation that DB's support for PB would extend to PB's hybrid instruments. These have been removed from Rating Watch Negative (RWN) to reflect our expectation that DB's propensity of support is highly unlikely to decrease, now that it has abandoned its plans to sell PB. RATING SENSITIVITIES IDRS, SR AND SENIOR DEBT Institutional support from DB now drives PB's IDRs and senior debt ratings, which are therefore primarily sensitive to changes in DB's IDRs. PB's IDRs, senior debt ratings and SR are also sensitive to any unexpected reversal in DB's integration strategy for PB or changes in our assumptions around DB's propensity or ability to provide PB with timely support if needed. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The hybrid securities issued by Deutsche Postbank Funding Trusts I-IV are primarily sensitive to DB's VR. DEPOSIT RATINGS PB's Deposit Ratings are sensitive to changes in the bank's IDRs. They are also potentially sensitive to the amount of qualifying debt buffer relative to the recapitalisation amount likely to be needed to restore PB's viability and prevent a default on its deposits. In addition, we could upgrade PB's Long-Term Deposit Rating when we have more visibility into PB's inclusion in DB's resolution plans following the bank's reintegration into DB's operations. Uplift for PB's Long-Term Deposit Rating from the bank's Long-Term IDR could be warranted if we believe that DB's large qualifying debt buffer would offer material incremental probability of default protection to PB's depositors or provide comfort that their recoveries in a default scenario would be above average. The rating actions are as follows: Deutsche Postbank AG Long-Term IDR: upgraded to 'A-' from 'BBB+'; Outlook Negative Short-Term IDR: upgraded to 'F1' from 'F2' Viability Rating: 'bbb+' unaffected Support Rating: upgraded to '1' from '2'; off RWN Senior debt and debt issuance programme ratings: upgraded to 'A-'/'F1' from 'BBB+'/'F2' Senior unsecured guaranteed bonds issued by the former DSL Bank: 'AA' unaffected Long-Term Deposit Rating: upgraded to 'A-' from 'BBB+' Short-Term Deposit Rating: upgraded to 'F1' from 'F2' Deutsche Postbank Funding Trust I-IV's hybrid securities: affirmed at 'BB+'; off RWN Contact: Primary Analyst Patrick Rioual Senior Director +49 69 76 80 76 123 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 60311 Frankfurt am Main Secondary Analyst Lola Yusupova Associate Director +49 69 768076 114 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. 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