Deutsche Bank AG had the credit rating of a class of debt cut to the lowest-investment grade level by Moody’s Investors Service after a change in German law last month paved the way for a more senior kind of borrowing.
Moody’s downgraded the bank’s senior debt to Baa3 from Baa2 and reclassified the bonds as “junior senior” debt. The government is now less likely to support what are currently senior notes, the ratings firm said in a statement on Friday.
A Deutsche Bank executive discussed the potential for a change last year, saying Germany might reintroduce preferred senior debt into its insolvency laws as the European Union prepared to standardise rules throughout the bloc. In effect, all senior bank debt in Germany was non-preferred, Deutsche Bank’s Alexander von zur Muehlen said during a February 2017 conference call.
“Following the change in law, the legal hierarchy of bank claims in Germany is now consistent with most other European Union countries,” Moody’s said in the statement. The new rating “reflects the revised hierarchy of claims.”
Deutsche Bank Chief Executive Officer Christian Sewing, who took over in April, is accelerating cost cuts and a pull-back from various investment-banking activities around the globe. The bank’s share price has plunged 32 per cent this year.
In a separate statement, Moody’s said it downgraded long-term senior unsecured debt of 14 German banks.
