As we have already noted today, things are not totally pretty at Deutsche’s investment bank (its corporate banking and securities business). In the second quarter, the cost-income ratio rose to 87% and profits fell 63% vs. the same period of 2011. Why was this? Undoubtedly, it had something to do with revenues (down 11% year-on-year), but Deutsche said part of the reason was….the exchange rate.
The depreciation of the euro against both the dollar and the pound has made investment bankers in the US and London more expensive, suggested Deutsche. In the past year, the euro has depreciated by around 11% against the pound and by around 15% against the dollar.
Not everyone is buying this story, however. Analysts point out that if the exchange rate was such an issue for the bottom line, it should have increased the top line at Deutsche too.
Nevertheless, with a cost-income ratio of 87% something must clearly be done. At the corporate and investment bank compensation per head was shaved a mere 11% year-on-year in the first half, making big pay reductions appear out of the question. Instead, there will be redundancies. Deutsche has also announced 1,500 investment banking job cuts – amounting to 15% of the total employees in its corporate banking and securities unit (although there are another 36,000 people allocated to bank-wide ‘infrastructure functions’). Under the dubious exchange rate rationale, London Wall and New York City seem likely to suffer far more than Frankfurt – unless the euro appreciates soon. But somehow this seems unlikely.
In the event of a eurozone debt crisis, you may wish to be working for a Russian bank. (Ria Novosti)
Why is Bank of America keeping Merrill Lynch when it doesn’t even make any money? (Bloomberg)
Bankers who’ve rigged the Libor rate could face up to 10 years in prison. (Telegraph)
LinkedIn collusion amongst terminated Libor traders. (ZeroHedge)
Greek writer notes the coincidence of the end of the Olympics with the start of the country’s financial crisis: “When the lights of the closing ceremony were turned off, reality began to take shape, and the dream was over. Those 16 days of great sport, soon turned into a financial abyss, an endless series of missed opportunities.” (Greek Reporter)