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Deutsche Bank downgraded
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August 26, 1998: 2:48 p.m. ET
S&P lowers long-term rating to AA+, says short-term outlook is 'negative'
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NEW YORK (CNNfn) - Standard & Poor's Wednesday lowered its long-term credit rating of Germany's largest bank, Deutsche Bank AG, and called the group's short-term outlook "negative."
S&P cut the bank's rating from a AAA to AA+.
"The downgrade reflects S&P's view of Deutsche Bank's problems to successfully integrate its investment and commercial banking activities, and the failure of a substantial improvement of its profitability and capitalization levels over recent years," S&P said.
S&P said Deutsche's position in domestic and selected international markets remains "strong," but profitability and cost levels compare unfavorably with its international competitors.
But S&P downplayed Deutsche's exposure to financial troubles in Asia and Russia, calling the situation "manageable" thanks to the relative size of the uncovered exposure. Additionally, S&P said the need for loan loss provisions seems to have peaked.
Deutsche has said its Russian credit portfolio amounts to 1.35 billion marks ($747 million), of which 50 percent is believed by analysts to be covered by loan loss provisions.
"The worst-case scenario for Deutsche Bank is about 1 billion marks ($553.56 million) which, for a bank the size of Deutsche, is nothing to get too upset about," said Mark Hoge, banking analyst at CSFB in London, adding that after taxes the exposure would amount to about 500 million marks ($276.78 million).
"That's less than 1 percent of market capitalization. It's not a big number," Hoge said.
German banks, the biggest creditors to Russia, have been hammered by Russia's financial crisis since Aug. 17, when the government effectively devalued the ruble and imposed a 90-day debt moratorium.
S&P said the company's short-term outlook is "negative," citing the increasingly difficult operating and competitive banking environment in which Deutsche operates.
"While the far reaching restructuring program creates the basis to better integrate its commercial and investment banking activities, and to improve its profitability and capital levels significantly, this environment poses significant challenges for the bank to achieve its ambitious goals," S&P said. 
-- from staff and wire reports
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