Today is the day of Deutsche Bank's fourth quarter results. They're not exactly what you'd expect. Behind the steely grey facade, unexpected things are afoot within the house of Cryan.
1. Deutsche Bank has done some truly epic hiring for its support functions
2015 was a year of infrastructure hiring at Deutsche's corporate and investment bank.
The bank added nearly 2,700 people into non-front office roles, an increase of 15%. At the same time, 246 people (3%) of the total, were trimmed from front office jobs at Deutsche. Overall, headcount increased by 9%.
In other words, Deutsche made next to no redundancies last year. Cuts of 3% in the front office are tiny compared to other banks.
The hiring in support functions will make it harder for Deutsche's front office staff to earn big money in future. The bank now employs 20,322 people in support roles and 7,958 people in front office jobs - a ratio of 2.6:1.
2. Deutsche Bank has slashed pay per head in its corporate and investment bank, and seems to have changed its figures to obscure this
During this morning's press call, CEO John Cryan said Deutsche will be paying below the market this year. Based upon rumours of 30% cuts to bonuses and today's figures for pay per head in 2015, that seems to be so.
Given all Deutsche's support-staff hiring, it's inevitable that pay per head would fall in the corporate and investment bank, but it seems to have fallen a lot.
How much pay has fallen by is open to question, however. This time last year Deutsche said it allocated €5.4bn to paying people in its investment bank. Today, it's restated 2014's compensation expenditure as just €3.7bn without explaining why (headcount numbers are the same). Pay per head has therefore evolved in one of two ways: it's down either 37% or 8% year-on-year depending upon which pay figures you take for 2014....
3. Deutsche Bank is bullish on (some areas of) fixed income currencies and commodities (FICC)
If you thought Deutsche Bank was about to deprive its fixed income business of capital and to slash headcount, you were wrong.
In fact, Deutsche plans to allocate more capital to some areas of FICC this year. The biggest beneficiary is likely to be the rates business, which doubled its revenues in 2015. During today's call, Cryan said the bank was finding "attractive pricing in new [rates] business, which is quite profitable."
4. Deutsche wants to grow its markets business
Deutsche Bank's FICC business had a dreadful fourth quarter (revenues down 45%), but compared to other banks, it didn't do too badly during 2015 as a whole.
On the other hand, Deutsche's equities business had a very poor 2015 compared to the rest. In equities, Cryan admitted that the bank lost market share. It looks a lot like it lost it to Goldman Sachs...
Nonetheless, Cryan was bullish about the future. "Global markets is a business we ultimately want to grow," he declared.
5. Deutsche Bank wants to hire in equities sales and research
Cryan attributed Deutsche's lost equities share to the "erosion of staff numbers" in sales and research last year. He said Deutsche plans to remedy this in 2016.
Deutsche's equity derivatives business, however, may be a bit of a lost cause. The business had a terrible 2015 and is not expected to recover in the next 12 months. Whereas equity derivatives used to be a €1.2bn business for Deutsche, Cryan said it will be a €1bn business in future.
6. Deutsche Bank wants to take more risk
As a corollary to growing its markets business, Deutsche wants to ramp up risk. Cryan said the bank under-performed in FICC trading in Q4 because it cut risk-taking too vigorously. Late in December, he said VaR (value at risk) hit a low "not seen since 2004," when the bank was far smaller than it is now. Deutsche has been too cautious, said Cryan, and that needs to change.
7. Deutsche had a terrible year in M&A and will be hiring here too
While rival US banks had an incredible year in M&A in 2015, Deutsche Bank performed abysmally. This was almost certainly related to the bank's focus on the less active European M&A market and to its relative weakness in the US.
When Cryan announced Deutsche's 'Strategy 2020' last year, he said the bank planned to hire for its M&A business, especially in the Americas. Deutsche CFO Marcus Schenck confirmed today that advisory hiring is a priority for 2016. Unfortunately, it's likely to be at least 12 months before any new strategic hires translate to higher revenues.
8. Deutsche's had a pretty good start to the year in its fixed income business
2016 has begun pretty well for Deutsche's fixed income business, according to CFO Marcus Schenck. Schenck said rates and FX have done especially well.
Deutsche's enthusiasm for its rates business would seem to suggest that bonuses won't be cut that much here after all.
9. Comparatively speaking, Deutsche isn't that over-exposed to FICC
Deutsche Bank is widely seen as over-exposed to fixed income currencies and commodities trading. However, the bank's revenue distribution for 2015 suggests its investment bank is actually less reliant on FICC than Citi.
10. Compensation in the non-core operations unit is very poor, but employees in private banking and wealth management earn more per head than Deutsche's corporate and investment bankers
So you thought investment banking employees are the best paid? You were wrong.
Photo credit: Deutsche Bank, Frankfurt am Main by ConstiAB is licensed under CC BY 2.0.