Deutsche Bank to Cut Compensation for Investment Bankers

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Adding to the news it would cut 1,900 jobs outside of Germany—with the pain expected to hit most acutely in New York and London—Deutsche Bank now says it will cut compensation as well.

“We need to further address both the absolute level of compensation and the relative balance between rewards for shareholders and those for employees,” Deutsche Bank AG Co-Chief Executive Officer Anshu Jain said last week on a conference call.

“Compensation must be clearly and visibly aligned to sustainable performance,” he added.

Bloomberg quotes Dirk Becker, a Kepler Capital Markets analyst in Frankfurt, as saying that the dearth of jobs in the sector will make it easier for Deutsche Bank employees to accept lower pay for lack of alternatives.

Times are changing

“A few years ago, no one in the investment banking industry would dare cut compensation as they’d lose their talent,” said Becker.

Of the 1,900 job cuts Deutsche plans, 1,500 will represent positions in its investment bank and related areas, the bank announced last week. Bankers in London and New York look to be particularly exposed.

The latest cost-cuts will contribute about $431 million to a cost-savings plan, the company said in a statement. Deutsche Bank employed 10,079 at the investment bank at the end of June, company filings show.

The latest planned cuts boosted the number of job reductions announced by western European financial firms this year to more than 25,000, following more than 107,000 in 2011, according to Bloomberg data.

“The European crisis has developed closer toward our more grim scenario than our better case scenario over the course of the past two years,” Jain said on the conference call. “Our prospects and our future view on profitability is different today than it was in 2010.”

Deutsche also reported that second-quarter pretax profit at its investment bank slid 63 percent to 357 million euros from a year earlier.

Finally, bringing on new staff seems to be out of the question. As we reported last week, Deutsche probably can’t afford to hire for its corporate banking and securities business. In the first half, its cost income ratio was 74 percent. Needless to say, Deutsche is making some big layoffs. Even taking the latest cuts into account, analysts at J.P. Morgan claim Deutsche remains one of the most staff-heavy investment banks there is.