Deutsche Bank is increasing its cost-cutting programme at the behest of co-CEOs Anshu Jain and Jürgen Fitschen, according to reports in the German press. What started out as €4.5bn over three years to 2015 has now been extended to potentially €6-7bn by 2018.
This is an extension of Deutsche’s ‘operational excellence program’ unveiled in the third quarter of 2012. Before the bank’s staff start to panic, it’s worth pointing out that these cost-reductions are not purely targeted at reducing compensation and headcount. Around 40% of the costs announced in 2012 were set to come from rationalising its infrastructure, integrating IT platforms and back office activities and putting some property up for sale.
However, let’s assume a worst case scenario. Currently, 43.4% of all of Deutsche’s costs are spent on compensation – namely, its employees – and each member of staff costs on average €125.3k. Assuming it maintained that ratio in the latest round of cost-cutting, this could mean a reduction of 5,200-8,650 staff across the group.
Another reason for concern is that the bank appears to be struggling to cut IT costs, which increased from €676m in the first quarter 2012 to €804m in Q1 this year.
However, the Deutsche has been reluctant to make wholesale staff cuts since announcing the previous cost-saving initiatives. In 2012, it employed 98,219 staff cross the group, a figure that has shrunk to just 97,184 in the first quarter of last year.
In its corporate banking and securities unit, which encompasses its investment bank, after stripping out over 1,300 employees during 2012, headcount has barely budged. In the front office, it had 8,215 employees during the first quarter of 2014, compared to 8,359 in 2013 and 8,500 in 2012.
Across the unit, including back office staff, headcount has gone up – it now employs 25,348, compared to 25,108 during 2013. It could be that Deutsche’s previously stated desire to add hundreds of employees in its compliance department is creating and artificial sense of buoyancy to its investment banking headcount figures.
The only place where headcount has declined significantly is within its non-core unit, where employee numbers fell from 1,525 in 2013 to 302 in Q1 this year.
Similarly, in Q1 the bank said it would be spending an additional €300m on salaries from 2014 for around 1,700 of Deutsche’s highest earners. Deutsche has been punitive with its deferrals – high earners have the entirety of their bonuses deferred over a five-year period – but has remained a relatively generous payer. Exactly where these cuts will occur, then, remains a mystery.
Deutsche is reporting its Q2 results on Tuesday, so potentially there’s more detail on where, exactly, these cuts will occur but currently the bank is declining to comment on the report. In March, it said it would cut an additional 500 jobs in its investment bank. Whether the bank maintains its stance of remaining committed to its fixed income currencies and commodities business is up for debate.