Moody’s placed Deutsche Bank on review for downgrade yesterday (Tuesday) in response to the bank reporting a 34% decline in earnings for the first quarter of 2014, and also yesterday upgraded LBBW in its third such rating action on a European covered bond issuer since Friday.

The rating agency upgraded Landesbank Baden-Württemberg (LBBW) from A3 to A2, on stable outlook, reflecting Moody’s view that senior depositors and bondholders will “very likely” benefit from multiple sources of support open to LBBW: the federal state of Baden-Württemberg (Aaa stable) and the City of Stuttgart; the Savings Bank Association of Baden-Württemberg (Aa3 stable); and cross-sector support from Germany’s public sector banks.

Also yesterday, Moody’s placed Deutsche Bank (A2) on review for downgrade following the German bank’s announcement of a 34% decline in net income for the first quarter of 2014. Moody’s noted that the first three months of a year is typically a strong period for Deutsche, and that its Q1 performance highlights ongoing difficulties as the bank implements its strategic plan for 2015 and beyond.

Moody’s said it is important for the bank to improve its earnings and capital generation as it is also facing challenges to improve capital and leverage, noting that Deutsche’s need to reduce leverage could hinder its ability to increase earnings, which the rating agency believes will make it harder for the bank to achieve its efficiency targets and earn its cost of capital.

“Deutsche Bank faces considerable execution challenges in strengthening and stabilising its profitability and generating acceptable shareholder returns, particularly given our view that its reliance on capital markets businesses leaves it with limited strategic flexibility,” said Peter Nerby, Moody’s senior vice president and lead analyst for Deutsche Bank.

Any downgrade of Deutsche would be limited to one notch, according to Moody’s.

Deutsche is on a roadshow ahead of a planned inaugural offering of new style hybrid capital in accordance with Basel III standards, which would be the first such Additional Tier 1 (AT1) issue from a German bank.

BayernLB was upgraded from Baa1 to A3 by Moody’s on Friday due to the German bank’s improved capitalisation, with a comfortable funding profile also contributing to the rating action. The rating agency said that BayernLB has reported “sound” capital ratios even under stricter Basel III rules, providing “a more suitable cushion to absorb losses”. In addition, the rating agency notes that the improved capital ratios place BayernLB in a better position to repay Eu4bn in state aid by 2019, as required by the European Commission. The outlook on the rating remains stable.

Moody’s upgraded UK issuer Lloyds Bank from A2 to A1 on Friday, citing as factors a stabilisation of the bank’s operating model and reduced downside risk, improvements in its liquidity and funding metrics, achievement of solid capital and leverage metrics, and improved earnings generation capacity. However, Moody’s kept the rating on negative outlook due to its view that there is a trend toward lower systemic support for UK banks.