Deutsche Bank Told to Add Securitized-Debt Collateral


Deutsche Bank AG needs to find extra collateral to remain a counterparty for top-rated asset-backed debt that’s tied to anything from mortgages to car loans, according to Fitch Ratings.

The bank’s credit rating, which Fitch downgraded last week, is no longer sufficient for AAA structured notes and Deutsche Bank needs to put up additional collateral for some notes within 14 days, according to a statement on Tuesday. The lender has already decided to do so in one transaction backed by Dutch mortgages, according to a separate statement.

Deutsche Bank, now ranked at BBB+, can only act as a counterparty for structured notes rated A. The lender’s London branch has higher long-term deposit and derivative counterparty ratings, and can support bonds graded AA. Fitch declined to disclose how many securities are affected.

Don Hunter, a spokesman for Deutsche Bank, declined to comment on the statement.

“When a large bank is a counterparty to a multitude of deals it will likely decide its approach, depending on its role in a transaction, the transaction documentation and the jurisdiction it’s in, including whether to post collateral or be replaced,” according to Tuuli Krane, an analyst at Fitch. “That is what we saw when Fitch downgraded RBS in 2015.”

Banks typically provide swaps or act as account managers or trustees on the notes. While it’s never possible to fully eliminate counterparty risk, it can be minimized to reduce the potential for direct negative impact of counterparties on the performance of the transactions, according to a May report by Fitch.

Affected Securities

Deutsche Bank, as the counterparty for interest-rate swaps for 524 million euros ($617 million) of bonds backed by Dutch home loans, is in breach of a rating trigger and will now post collateral, Fitch said on Tuesday.

Germany’s biggest bank was at the center of an industrywide selloff in bank securities last year amid fears that a $14 billion fine from the U.S. Justice Department would jeopardize its ability to pay coupons on some subordinated bonds. The notes recovered after the lender settled for half that sum and then raised 8 billion euros from shareholders in April.

Deutsche Bank had its long-term credit grade cut one level on Thursday by Fitch, which said the lender will take longer to revive growth under a turnaround plan unveiled in March. Credit-default swaps insuring against losses on Deutsche Bank’s senior debt rose to 90 basis points on Tuesday, the highest level since Aug. 31, according to data compiled by Bloomberg.

— With assistance by Donal Griffin, and Tom Beardsworth

(Corrects Oct. 3 story to remove erroneous reference to CLO in what was the eighth paragraph.)
    Before it's here, it's on the Bloomberg Terminal.