Deutsche Bank has increased salaries for its senior investment bankers. Back in April, the German bank said it was hiking salaries for 1,700 of its highest earners by an average of €176k per head. Now it's complaining that those increases are inhibiting its ability to cut costs.
Despite a cost-cutting programme, Deutsche said today that non-interest expenses in its corporate banking and securities division rose 10% year-on-year in the third quarter. For this it blamed, 'regulatory spend, platform enhancements, and the impact of CRD4 pay-mix adjustments [AKA the European Union's bonus cap]', stating that these, 'more than offset', progress on reducing its operating expenses. Spending on compensation and benefits in the business rose 15% in the third quarter compared to the same period of 2013.
This doesn't mean that the bulk of Deutsche's investment banking employees are on track for higher pay this year. For the first nine months of 2014, Deutsche accrued compensation averaging €163k for each of its corporate banking and securities staff, down very slightly from the €165k average it accrued last year.
With senior staff now earning gigantic salaries, Deutsche - like other banks - may now be inclined to skew its headcount in favour of cheaper juniors. Front office headcount in the corporate and investment bank rose by 271 people between June and October, indicating the arrival of Deutsche's annual student intake. Overall headcount increased by only 301 over the same period, implying that most of Deutsche's junior hires are salespeople, traders and M&A bankers, rather than operations professionals.
Away from the core investment bank, horrible things have been happening to headcount in Deutsche's non-core unit, which deals with its undesirable legacy assets. Front office staff there were slashed from 1,553 to just 267 people between the third quarter of 2013 and the third quarter of 2014. Severance pay was a measly €5m euros over this period, suggesting that you might not want to work in a non-core unit (or that you might not want to work for Deutsche's non-core unit specifically) after all.
What of Deutsche's all-important fixed income currencies and commodities (FICC) unit? Here the picture is a little blurry. Yes, Deutsche said it increased FICC revenues excluding all accounting adjustments by 18% year-on-year. Yes, Deutsche seems to have sidestepped involvement in the FX fixing scandal. Yes, the U.S. business is going well and FX trading is making a comeback. But Deutsche said clients are still 'on the sidelines' and compared to the second quarter of 2014, Deutsche's Q3 FICC revenues were down 14%. This looks a little ominous compared to the 2% reduction at Goldman Sachs, the 1% increase at JPMorgan, and the 6% increase at Credit Suisse.
In the last three months at least, Deutsche seems to have lost market share in its key business area. That's a problem. - But not for its most senior fixed income bankers, who will be receiving their new high salaries regardless.