Deutsche Bank has reported its first quarter results as it continues its grand plan for restructuring by 2020. As expected, both its corporate and investment bank and global markets business performed badly – with revenues down 15% and 23% respectively compared to this point last year.
This is what you need to know.
1. Corporate and investment banking headcount has been heading up
To some this may be surprisingly, but when you consider co-CEO John Cryan’s comments in December that the bank would be investing in M&A, equity capital markets and prime services, an increase in headcount should, to some extent, be expected.
In the front office, just 17 people have departed since the end of 2015, but there are still 129 more employees than at this point last year. However, it’s elsewhere in the CIB business where Deutsche Bank has really been investing – there are 9,334 people outside of the front office now, compared to 8,430 at this point last year.
2. The pain is in the markets business, but not much
Predictably, more people have been cut from Deutsche’s markets business. Across the board revenues were down in its fixed income division – FX, rates and credit all posted lower revenues than last year and Deutsche's securitised trading business is being shrunk under its 2020 strategy.
In the front office, 172 people have departed Deutsche’s markets business since the beginning of 2016 and 209 have left since Q1 2015. Headcount in the front office is down by a mere 4% year on year in the front office, though, and employee numbers continue to increase across the markets business. Stripping out the front office, there are a huge 18,294 people working in support roles in Deutsche’s markets business – 1,152 more than Q1 2015.
3. Deutsche Bank is speeding up its FICC restructure
Deutsche has already said that it wants to reduce risk weighted assets (RWA) its markets business, with securitised trading and emerging markets trading being particularly impacted. Marcus Schenck, Deutsche’s CFO, said that it had been reducing RWA in this area for the “past couple of quarters” and will continue to do so for “the remaining quarters” in 2016. In other words, cost-cutting earmarked for 2017/18 has been brought into this year.
4. Prime services is the place to be, Deutsche’s ECM expansion looks doomed
Prime services revenues were flat year on year. This was the only business in the markets business not to post a decline in revenues. Cryan has already said that he intends to expand here, despite the heavy capital requirements it brings. He reiterated this today: “There’s been too much focus on shrinking ourselves to greatness. Prime services has good, well-controlled margins and the guys in equities like it because they can build revenues around it.”
M&A is another area of expansion and again held up well – advisory revenues were up 4% year on year, despite a strong first quarter in 2015 and reduced M&A revenues across the board so far this year. Only Morgan Stanley (25%) and J.P. Morgan (8%) increased revenues in M&A.
But equity origination is down 68% - Goldman Sachs (down 66%) was the only other investment bank to get close to such a big year on year decline. Suddenly, expansion in this area looks like a bad idea.
5. Pay is down, of course
Deutsche Bank may have increased headcount, but it’s paying people less. The first quarter is usually when banks accrue and pay out the most to their employees, but Deutsche has shrunk the pool by 22% in its markets business and 12% in CIB.
On a pay per head basis, the first quarter averaged out at €29.9k in its CIB, down from €36.1k at this point last year. In markets, average pay went from €29.4k in Q1 2015 to €21.9k this year.
6. Those new equities hires don’t look great
Deutsche Bank has plans to hire 100 people for equities trading. Like other bank CEOs, Cryan was keen to point out that markets had normalised in March and April after the chaos of the first two months. However, its equities business suffered across both cash and derivatives, meaning a 29% year on year slide. Only Goldman Sachs (-59%) did worse.
7. The IT cost-cutting is progressing
Deutsche decommissioned 12% of its IT application base in the first quarter – or 500 applications – and ‘off-boarded’ over 700 technology vendors. There are still 3,900 old or defunct applications to go, however. And when you consider that Deutsche Bank has cut 450 technology jobs – primarily in offshore centres like India – the increase in infrastructure staff is all the more surprising.