It's Deutsche Bank results day. Ostensibly, things aren't so bad. The German bank achieved a return on equity of 19% in its corporate banking and securities division, costs were a mere 63% of total revenues, fixed income currencies and commodities (FICC) revenues were down a mere 10% year-on-year and only 144 front office bankers have been dumped since December.
There was even some good news for Deutsche's highest paid investment bankers. The German bank is notorious for deferring the entirety of its bonuses for its highest earners over a full five year period. However, in future deferred bonuses will need to be lower and cash salaries higher if Deutsche is to conform to the EU's bonus rules. Shareholder approval permitting, Jürgen Fitschen said Deutsche will be paying €300m a year in extra salaries from 2014. Anshu Jain said the €300m increase will apply to around 1,700 of Deutsche's highest earners, implying an average salary hike of €176k per head. Overall, pay at Deutsche is expected to remain static as bonuses fall to take account of this.
Separately, like JPMorgan and Citigroup, Deutsche also said it's bolstering its compliance teams. Jain said the German bank will add 500 compliance staff this year and double its spending on compliance systems. Deutsche will also add around 150 'compliance supervisors' in the front office - implying that already tight demand for 'compliance advisory professionals' across the market is due to become tighter still,
However, the increase in compliance hiring isn't good news for Deutsche's front office investment bankers. Both Jain and Jürgen Fitschen, Deutsche's co-CEOs, spoke repetitively of, "regulatory headwinds" unexpectedly adding costs across the bank. Spending must fall elsewhere to compensate and front office bankers look likely to suffer. While 144 front office investment bankers lost their job in Deutsche's corporate banking and securities unit in the past three months, 384 middle and back office staff were added.
Meanwhile, what about jobs in Deutsche's hitherto struggling FICC business? After a poor performance in FICC in the fourth quarter, last month Deutsche was reported to be cutting 500 jobs - mostly in fixed income sales and trading. However, there was no mention of this in today's call and results materials and Deutsche instead stressed how well it performed in FICC during the past quarter - achieving a mere 10% year-on-year, reduction in revenues, compared to a drop of 11% at Goldman Sachs, of 21% at JPMorgan and of 21% at Credit Suisse. Deutsche even said that it had a good quarter in core rates and a good quarter in core credit, but a bad quarter in FX.
And yet, it wasn't all wonderful in FICC. Several analysts pointed out that Deutsche's figures were skewed by the exclusion of its commodities sales and trading business. When this is added back in, Deutsche admitted that it's FICC revenues would have fallen 16% year-on-year on an annual business. Under questioning, Fitschen admitted that the rates revenue increase was due to inventory disposals. And various analysts pointed out that Deutsche's FICC revenues fell while the amount of capital it committed to the business increased, making the past quarter look unsustainable. "We no longer want to be all things to all people in fixed income," Jain admitted.