Fearful for bonuses, Deutsche Bankers are finding other options

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Deutsche Bank bonus worries

It's not just Tadhg Flood. - Deutsche Bank's co-head of global financial institutions group (FIG) banking might be the latest to leave (for Centerview Partners) but the ongoing outflow of senior talent from Deutsche Bank suggests his exit is symptomatic of a trend.

As we've noted several times this month, exits from DB seem to be gathering pace. Flood's FIG team was fragmenting even before its co-head evacuated: Claire Brooskby, Rainer Polster, and Kris Triggle, all London-based MDs on the FIG team, have also quit voluntarily in the past month. In the U.S., insiders point to an exodus of senior staff from the U.S. risk and regulatory team, one of the most recent of whom is understood to be Andres Oranges, the former chief operating officer for liquidity risk management.

Those who leave Deutsche are finding jobs elsewhere. Darren Campili, a former managing director on Deutsche's shrunken hedge fund team, turned up at Barclays in July. Tomas Rosengren, a former director in synthetic global equities prime finance, joined SEB in Stockholm this August. His colleague, Andrew Townend, is understood to have gone to HSBC in June.

Deutsche Bank is a repository of talented staff; rival banks are making the most of it.

Deutsche bankers' realization that they can go elsewhere has the potential to cause a headache for CEO Christian Sewing as he attempts to get costs below €23bn for 2018.

As we noted earlier this week, Sewing's Deutsche must spend no more than €10.8bn in the second half if it's to meet its hard €23bn cost target. However, in the second half of 2017, Deutsche spent €6bn on compensation alone as it attempted to bolster its bonus pool after it failed to accrue bonuses in the first six months of the year. That move helped finish off former CEO John Cryan and Sewing has promised not to repeat it. During the bank's second quarter conference call, CFO James von Moltke said the bank is instead accruing bonuses on a rolling basis for 2018.

And yet, the numbers don't seem to add up. Deutsche Bank's bonus pool for last year was €2.2bn, most of which was accrued in the second half as the bank poured money into bonuses in the final quarter. But Von Moltke said in July that the bank only accrued an additional €100m towards bonuses in the first half of this year.

The implication is that Deutsche either needs to again funnel money into bonuses between now and December, or to cut a lot of heads, or to cut incentive pay. The first option appears precluded by Sewing's cost target, making the second and third options seem likely. Heads are most certainly rolling, but front office bankers who survive still aren't convinced of Sewing's promises to pay. Hence the growing trickle of senior staff to rivals bearing cash...

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