The rating action reflects the new contractual subordination regime in Germany, which allows banks to issue senior unsecured debt equivalent to preferred senior debt and ranking above senior non-preferred debt in insolvency and resolution.

Scope Ratings said that recent changes to § 46f KWG in Germany introduce contractual subordination for banks’ debt instruments issued after 21 July 2018.

These instruments will rank pari passu with the outstanding senior unsecured debt of German banks, which has been structurally subordinated in insolvency or resolution based on the earlier Subordination Law, effective since January 2017, and will also be MREL/TLAC-eligible. At the same time, German banks are now able to issue unsecured debt equivalent to preferred senior which will not be eligible for MREL/TLAC.

The regulatory changes highlighted above enable Scope to apply fully its bank rating methodology (last updated in May 2018) when rating the different categories of senior unsecured debt issued by EU banks. Specifically, the rating of the new non-preferred senior remains one notch below the respective German bank’s Issuer Rating, thus in line with the existing senior unsecured debt ratings. On the other hand, the newly-assigned ratings for German banks’ senior-preferred equivalent debt is one notch higher, thus aligned to the respective bank’s Issuer Rating.

This rating action is based on the approach highlighted earlier by Scope (May 2018) (link).
Commerzbank’s preferred senior-equivalent unsecured debt is rated at A, with Stable Outlook.