Commerzbank’s long term issuer and senior unsecured ratings were downgraded to A2 from A1 by Moody’s. This is due to expectations that the “volume of its loss-absorbing bonds will be reduced” relative to the size of the German bank’s balance sheet. Based on Moody’s ‘Advanced Loss Given Failure (LGF)’ analysis, in the event that Commerzbank goes into default, there will be a higher loss severity for holders of its senior unsecured debt. With this downgrade, Moody’s revised Commerzbank’s outlook from negative to stable. The rating agency opines that the bank’s fundamental credit profile is still resilient and solidly positioned among peers, helped by their steady performances in Germany and Poland and well-diversified business lines. Further, Moody’s notes that the bank’s ongoing strategic transformations will improve risk-adjusted profitability in the long run. Commerzbank has also managed to improve their topline, benefiting from rate hikes in core markets, which has offset rising costs amid inflationary pressures. Moody’s adds that Commerzbank had maintained a healthy tangible CET1 ratio of 13.2% as at year-end 2021, which is comfortably over regulatory capital requirements.

Commerzbank’s 8.125% dollar bonds due in 2031 are trading at 102.66, down 0.37 points at a yield of 5.79%.

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