Moody’s Capital Markets Research issued a damning verdict on Deutsche Bank earlier this week. In a research report put together by the credit agency’s ‘Analytics’ research division, Moody’s analysts write that Deutsche Bank expected default frequency remains at one of the highest levels in the banking industry, despite the bank’s efforts to shore up its capital position.
In the report, Moody’s cites its Expected Default Frequency measure, which is a continuous measure of a firm’s default risk. The firm’s one-year EDF measure increased from 1.05% in January to its all-time high of 2.85% on February 9. Since then, the EDF measure has declined somewhat, but remains volatile, reflecting Deutsche Bank’s lingering financial problems. At present, the company’s current EDF measure is a 1.39%, which is still significantly above the Global Banks and S&Ls group’s optimal threshold level as calculated by Moody’s. The optimal threshold or value at which firms in the Global Banks and S&Ls Group should be flagged for additional review is 1.22%. Deutsche Bank Is Dangerously Close To Falling Below Its “Default Point” There are two key takeaways from the EDF measure of 1.39%. Firstly, only 15% of companies in the Global Banks and S&Ls group have an EDF measure above this level suggesting that, compared to the rest of the global banking industry, Deutsche’s default risk is relatively high. That being said, the second key takeaway is the fact that Deutsche’s EDF is only slightly above the trigger level, implying that the firm is not facing imminent risk of default but requires close monitoring.