Deconstructing Deutsche's first quarter investment banking results

Deutsche's first quarter results are out and they are good. Overall profits are up 49%, profits in investment banking are up 75%, everyone is pleased etc. etc.

Beyond the happy headlines, here are a few other things of note, some cheering, some not.

Compensation accruals have jumped sharply

As we've noted previously, compensation per head figures for Deutsche's corporate and investment bank (CIB) aren't entirely reliable given that most of the back office staff aren't included in CIB headcount.

Nevertheless....it does seem that Deutsche's corporate and investment bankers are on track to get paid more this year: individual compensation accruals rose 27% in the first quarter.

Employees are getting a smaller share of the profits

Marxism seems to be failing at Deutsche.

In the first quarter, compensation accruals as a percentage of profits fell from 96% to 70% year on year. In recent terms, this is a historical low: in 1Q08 the corporate and investment bank made a large loss, but accrued nearly the same amount in compensation; in 1Q07 compensation accruals were 115% of profits; and 1Q06 and 1Q05 the figures were 103% and 112% respectively.

The message appears to be clear: as profits recover, investment bankers at Deutsche will be getting less of them.

Deutsche has done exceptionally well in equities sales and trading

Based on revenues at the banks which have announced so far (JPMorgan, Goldman, BofA, Citigroup, Morgan Stanley and Credit Suisse), Deutsche seems to have done very well in equities in the first quarter.

The bank points out that equities trading revenues were strongest since 4Q07. Its revenue share went from 3.1% last year, to 12.8% this year (to the apparent detriment of JPMorgan, Citigroup and Credit Suisse, which all lost out dramatically).

In fixed income sales and trading, Deutsche's share of Q1 revenues went from 14% to 15% year on year. In investment banking, its share went from 7.9% to 10%. Not a bad quarter, all in all.

Hiring is muted compared to European rivals

Although Deutsche has announced various big hires in recent weeks, it's growing headcount at a slower rate than some of its rivals.

Corporate and investment banking headcount rose by 188 people, or 1.3% over the past quarter. Credit Suisse added 600 people (3%). Goldman added 600 (1.8%), and JPMorgan added 323 (1.3%).