Deutsche Bank

Annual Report 2017

Liquidity and Capital Resources

For a detailed discussion of our liquidity risk management, see our Risk Report.

Credit Ratings

Deutsche Bank is rated by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Credit Market Services Europe Limited (“S&P”), Fitch Ratings Limited (“Fitch”), and DBRS, Inc. (“DBRS”, together with Moody’s, S&P and Fitch, the “Rating Agencies”).

S&P and Fitch are established in the European Union and have been registered in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, as amended, on credit rating agencies (“CRA Regulation”). With respect to Moody’s, the credit ratings are endorsed by Moody’s office in the UK (Moody’s Investors Service Ltd.) in accordance with Article 4(3) of the CRA Regulation. With respect to DBRS, the credit ratings are endorsed by DBRS Ratings Ltd. in the UK in accordance with Article 4(3) of the CRA Regulation.

Credit Ratings Development

Following the strategy update and capital increase in March 2017, Deutsche Bank’s ratings were affirmed by all four rating agencies. The rating agencies continued to adapt their ratings methodologies to reflect the changes in European bank resolution frameworks, however, and these methodology changes resulted in several rating changes during the year.

Following the announcement of the capital increase and the strategic update in March 2017, Fitch removed its credit watch negative assignment and put Deutsche Bank’s ratings on negative outlook. In June 2017, DBRS changed the outlook on Deutsche Bank’s senior unsecured debt and deposit ratings to stable from negative acknowledging the diminished pressure on Deutsche Bank’s credit fundamentals following the successful capital raise.

In March 2017, S&P resolved its credit watch on German banks reflecting the imminent changes in the German bank resolution regime. Deutsche Bank’s issuer credit ratings and instruments that S&P continues to view as senior unsecured (or ‘preferred debt’) were upgraded to A- from BBB+ to reflect the increase in loss absorbing capacity as a result of the bail-in law. Instruments that were reclassified as senior subordinated debt (or ‘non-preferred debt’) were downgraded to BBB- from BBB+. The outlook remained negative.

In September 2017, Fitch downgraded Deutsche Bank’s counterparty, debt and deposit ratings by one notch (counterparty assessment and deposit ratings to A- and the ‘non-preferred’ debt to BBB+) reflecting Fitch’s view of the continued pressure on Deutsche Bank's earnings, combined with a prolonged implementation of its strategy. As a result of the downgrade to the long-term ratings, the short-term ratings were also downgraded to F2 from F1. The outlook was raised to stable.

In December 2017, Moody’s affirmed Deutsche Bank’s Baa2 senior unsecured ratings but changed the outlook for this specific debt class to negative. The outlook change applies to most German banks and exclusively refers to an amendment to the EU’s Bank Recovery and Resolution Directive (BRRD) which will require banks to introduce one class of ‘preferred’ and one class of ‘non preferred’ senior debt. Moody’s regards this development as credit negative for existing ‘non-preferred’ senior unsecured bonds issued by German banks as they could rank pari passu with future junior senior bonds once the BRRD amendments are transposed into German law. Once this amendment is passed, Moody’s would likely remove the remaining notch of government support from this debt class.

Potential Impacts of Ratings Downgrades

Deutsche Bank calculates the potential impact of a one-notch and two-notch downgrade by the rating agencies (Moody’s, Standard & Poor’s and Fitch) on its liquidity position, and includes this impact in its daily liquidity stress test and Liquidity Coverage Ratio calculations.

The hypothetical impact of a one-notch downgrade across the three Rating Agencies Moody’s, Standard & Poor’s and Fitch would adversely impact Deutsche Bank’s liquidity position by approximately € 1.3 billion, mainly driven by increased contractual derivatives funding and/or margin requirements.The hypothetical impact of a two-notch downgrade would adversely impact Deutsche Bank’s liquidity position by approximately € 3 billion, driven by increased contractual derivatives funding and/or margin requirements of approximately € 1.6 billion and term deposits with downgrade triggers of approximately € 1.4 billion.

The above analysis assumes a simultaneous downgrade by the three rating agencies Moody’s, Standard & Poor’s and Fitch that would consequently reduce Deutsche Bank’s funding capacity in the stated amounts. This specific contractual analysis feeds into the bank’s idiosyncratic liquidity stress test scenario.

The actual impact of a downgrade to Deutsche Bank is unpredictable and may differ from potential funding and liquidity impacts described above.

Selected rating categories

 

Counterparty Risk

Senior preferred/Deposits1

Senior non-preferred2

Short-term rating

1

Defined as senior-senior unsecured rating at Moody‘s, senior unsecured at Standard & Poor’s, senior preferred debt rating at Fitch. DBRS does not provide a separate preferred’ rating. Moody’s, Standard & Poor’s and Fitch provide separate ratings for deposits and ‘senior preferred’ debt, but at the same rating level.

2

Defined as senior unsecured debt rating at Moody's, as senior subordinated debt at Standard & Poor’s, as senior non-preferred debt at Fitch and as senior unsecured debt at DBRS.

3

Moody’s defines A-rated obligations as upper-medium grade obligations which are subject to low credit risk and Baa rated obligations are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics. The numerical modifier 2 indicates a ranking in the middle of the category and the numerical modifier 3 indicates a ranking at the lower end of the category.

4

Standard and Poor’s defines its A rating as somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong. An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The minus indicates a ranking in the lower end of the respective category.

5

Fitch Ratings defines its A rating as high credit quality. Fitch Ratings uses the A rating to denote expectations of low default risk. According to Fitch Ratings, A ratings indicate a strong capacity for payment of financial commitments. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than higher ratings. Fitch Ratings defines its BBB rating as good credit quality. Fitch Ratings uses the BBB rating to indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. The plus indicates a ranking in the higher end of the respective category. The minus indicates a ranking in the lower end of the respective category.

6

DBRS defines A-ratings as satisfactory credit quality, with still substantial protection of principal and interest; issuers in this category are more susceptible to adverse economic conditions and have greater cyclical tendencies than issuers in the categories AAA and AA. The modifier (high) indicates a ranking in the upper end of the respective category. The modifier (low) indicates a ranking in the lower end of the respective category.

Moody’s Investors Service, New York3

A3 (cr)

A3

Baa2

P-2

Standard & Poor’s, New York4

A-

BBB-

A-2

Fitch Ratings, New York5

A- (dcr)

A-

BBB+

F2

DBRS, Toronto6

A (high)

A (low)

A (low)

R-1 (low)

Each rating reflects the view of the rating agency only at the time the rating was issued, and each rating should be separately evaluated and the rating agencies should be consulted for any explanations of the significance of their ratings. The rating agencies can change their ratings at any time if they believe that circumstances so warrant. The long-term credit ratings should not be viewed as recommendations to buy, hold or sell our securities.

Tabular Disclosure of Contractual Obligations

Cash payment requirements outstanding as of December 31, 2017

Contractual obligations

Payment due by period

in € m.

Total

Less than 1 year

1–3 years

3–5 years

More than 5 years

1

Includes interest payments.

2

Long-term debt and long-term deposits designated at fair value through profit or loss.

Long-term debt obligations1

173,571

48,981

41,227

36,373

46,990

Trust preferred securities1

5,726

5,038

677

11

0

Long-term financial liabilities designated at fair value through profit or loss2

6,753

1,967

1,020

650

3,116

Finance lease obligations

98

8

11

10

70

Operating lease obligations

4,564

684

1,140

838

1,901

Purchase obligations

1,836

266

680

111

779

Long-term deposits1

30,843

0

13,587

5,105

12,151

Other long-term liabilities

1,293

405

605

66

218

Total

224,683

57,349

58,946

43,164

65,224

Figures above do not include the future revenues of non-cancellable sublease rentals of € 58 million on operating leases. Purchase obligations for goods and services include future payments for, among other things, information technology services and facility management. Some figures above for purchase obligations represent minimum contractual payments and actual future payments may be higher. Long-term deposits exclude contracts with a remaining maturity of less than one year. Under certain conditions future payments for some long-term financial liabilities designated at fair value through profit or loss may occur earlier. See the following notes to the consolidated financial statements for further information: Note 5 “Net Interest Income and Net Gains (Losses) on Financial Assets/Liabilities at Fair Value through Profit or Loss”, Note 24 “Leases”, Note 28 “Deposits” and Note 32 “Long-Term Debt and Trust Preferred Securities”.