FINANCIAL INSTITUTIONSISSUER IN-DEPTH 25 October 2016ContactsIrina Baron Associate Director irina.baron@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Deutsche Bank AGDeutsche Banks Adversity Lifts its Probability of Default Germanys biggest bank, Deutsche Bank AG, faced intense scrutiny from investors in recent months. The companys EDFTM (Expected Default Frequency) has shown signs of deterioration as the companys financial risk has been elevated, as measured by its market leverage. In January the bank reported its first full-year loss since the financial crisis. This exemplifies banks current difficulties, with low interest rates limiting their ability to generate profits from deposits, loans, and other market services. Deutsche Banks losses included ª5.2 billion in provisions for fines and lawsuits.The firms one-year EDF measure increased from 1.05% in January to its all-time high of 2.85% on February 9 (Figure 1). Since then, the EDF measure has declined somewhat, but remains volatile, reflecting Deutsche Banks lingering financial problems. Deutsche Banks US unit failed a Federal Reserve stress test in June, and the International Monetary Fund named the bank as the most important net contributor to systemic risks. One of the latest additions to the myriad of challenges is the $14 billion fine proposed by the US Department of Justice over Deutsche Banks issuance of residential mortgage-backed securities in the lead-up to the financial crisis.Deutsche Banks elevated risk profile is reflected in the companys current EDF measure of 1.39%. This level is also above the Global Banks and S&Ls groups optimal threshold level. Moodys Analytics has established thresholds for each industry group, which flags companies with elevated default risk1. The optimal threshold, or value at which firms in the Global Banks and S&Ls Group...
