Deutsche Bank’s investment bankers are bracing for a double-digit cut in their bonus pool after the division recorded one of its worst years since the financial crisis and the shares slumped to a record low.
The bonus pool “is looking pretty horrible . . . it’s significantly down”, said one of the people briefed on the process, which has not yet been finalised. The person added that decline was “comfortably” in the double digits.
Another person said that, on aggregate, bonuses in some business areas were set to be down between 15 and 20 per cent.
Last year, the bank paid €2.2bn in variable pay, reversing its dramatic 2016 move to slash bonuses by more than 80 per cent to €500m. The 2017 bonus pool was 8 per cent lower than in 2015 but exceeded payouts to shareholders by a factor of almost 10.
The bank will report preliminary 2018 results on February 1 and will disclose its final bonus pool on March 22, when it will publish its annual report. “The eventual size of the bonus pool can still change over the next two months,” said one person familiar with the process.
The reduction should not come as a surprise after Deutsche’s struggles in investment banking last year. The bank lost further market share to rivals across the board and posted a 15 per cent plunge in revenue at the crucial trading business in the third quarter.
Discouraged by dwindling pay and worried about Deutsche’s long-term commitment to the unit, a string of high-profile executives and managing directors have defected to rivals.
Additionally, in a drastic measure to control costs — which still account for more than 90 per cent of the division’s income — in May Christian Sewing, chief executive, axed one in four jobs in its equities sales and trading business.
Deutsche cut 930 front office staff in the year through September leaving them with 16,500 such employees in the investment bank. Overall, the bank reduced headcount by 2,800 to 94,800 over the same period.
The cuts and departures are part of the reason the pool is smaller. However, the actual impact per employee might be steeper than the headline figure suggests because recent attrition among senior bankers with above-average bonuses was particularly high, one of the people said. That means the bonuses for the people brought in to replace them must come from the remaining pool.
A spokesman for the bank declined to comment.
Mr Sewing, who took over in April, has also come under pressure from the bank’s largest shareholders not to repeat 2017’s tactic of paying to retain staff despite substandard performance.
One top-ten investor “vehemently” pointed out to management that 2018’s poor results cannot justify across the board incentive payments at the previous level, a person familiar with the thoughts of the investor said.
“It is fine if the bank pays top dollars for top performance, but it needs to stop paying top dollars for bad performance”, the person said.
A person familiar with Mr Sewing’s thinking said the chief executive understood investors’ rationale and was willing to accept that some high-level investment bankers may leave because of the limited bonuses. Frankfurt-based top executives believe staff in international hubs such as London and New York have been historically overpaid, another person said.
The lender’s current executive board stands by the assertion of former chief executive John Cryan, when he said last year that the last bonus payments were a “one-off investment” to retain important staff and would not be repeated unless performance improved.
Since then Deutsche’s investment bank has continued to lose ground. In the first three quarters of the year, revenue fell 9 per cent to about €10.5bn and pre-tax profit was down 53 per cent to €834m. Fees from arranging bonds, loans and M&A advice dropped 13 per cent and the bank remains mired in eighth position globally, according to the latest data from Refinitiv.
On a group level, analysts on average expect a return on tangible equity of only 1 per cent for 2018, a far cry from Deutsche’s medium-term target of around 10 per cent.
One of the bank’s top managers said the years of job cuts and pay disappointments were having a disproportionate impact on younger staff, who are both easier to make redundant and more willing to quit if they receive a “bad” bonus. Older managers closer to retirement, with fewer options to move and more ties, are more likely to grin and bear it.
