Deutsche Bankers have bonus-cut fatigue

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Deutsche Bankers have bonus-cut fatigue

Surprise! As has long seemed inevitable, Deutsche Bank is said to be contemplating cutting this year's bonus pool. However, Deutsche's bankers may brush it off.

Bloomberg reports today that Deutsche is contemplating cutting its bonus pool by as much as 20%. Based on last year's bank-wide bonus pool of $2.1bn, this implies a reduction of $420m. This seems to be a deeper cut than necessary as Deutsche seeks to achieve this year's cost target of €21.5bn - our analysis earlier this week suggested a cut of €200m ($220m) might have sufficed. The bigger reduction may reflect the miserable return on tangible equity of just 1.6% in the investment bank in the first nine months of 2019, or the need to take an additional €1.2bn of costs out of the invesment bank between 2020 and 2022, as a result of which the bank won't want to backload a lot of deferred bonuses from this year. 

Deutsche isn't commenting on the validity of the rumours, but it's clearly hoping that revenue-generating staff in its investment bank won't mind too much if their bonuses are curtailed again. In a presentation earlier this week, the bank said morale has picked up significantly now that employees and clients are clear on the bank's strategy and that the most recent employee satisfaction survey indicated that DB people are happier now than at any time since 2014. Morale is much better when, "clients and employees know the business you are," and there's a "defined perimeter," said head of the investment bank Mark Fedorcik.

Of course, DB staff  have another reason to shrug off bonus cuts: high salaries. Deutsche has deliberately skewed compensation away from variable pay. Its senior traders and bankers now command average salaries of $800k, which are around 30% higher than rivals'. High salaries mean payment in immediate accessible cash. They also mean the avoidance of deferred bonuses paid in Deutsche Bank stock, which has fallen another 10% in the past year. 

Deutsche's problem might come when it tries to hire new staff, particularly in the U.S. market where other banks still offer considerable upside on bonuses. Even last year, the FT said the bank was paying aggressive packages to recruit on Wall Street, while Fedorcik said the bank was 'defending' itself against high performers' attempts to leave (presumably with buybacks). Speaking this week, Fedorcik and co-head Ram Nayak said Deutsche plans to make additional hires to its global rates and advisory businesses next year. 

One source close to Deutsche questioned the contentment in the bank. "Everyone seems very miserable still," he claimed, before mischievously suggesting that the results to the recent satisfaction survey were a manifestation of Stockholm Syndrome. 

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