Morning Coffee: Deutsche Bank's job cuts were weirdly cheap to make. Barclays keeps hiring from J.P.M.
Yesterday's second quarter results from Deutsche Bank included some curious revelations. Not only did Deutsche opt to accrue an additional €70m in bonus costs in the second quarter as the bank prepares to pay bonuses for 2018, but the German bank revealed that it's been underspending on layoffs. As the Financial Times points out, Deutsche had expected to spend €800m making 4,500 people redundant this year. In fact, it's only spent €280m. CFO James Von Moltke said that getting to €800m in restructuring costs may be "challenging."
This is a nice problem to have if you're Von Moltke and are trying to extract nearly €2bn in costs in two years. It has the potential to be less nice if you're a Deutsche Bank employee who's laid off. As we reported before, laid off Deutsche Bankers in the UK have been complaining that the bank has cut its severance packages to the statutory minimum of one week's pay per year served (two years ago the bank was allegedly paying one month). Some Deutsche Bank traders also claim they're being made to work their gardening leave and that they have signed contracts giving the bank the opportunity to cut their notice periods from three months to just one month within five days of handing in their notice.
All this may help explain how it is that Deutsche's job cuts have been so cost effective. At the corporate and investment bank specifically, Deutsche cut 1,758 people in the six months to January, with 1,097 of those coming from the front office. The bank spent €178m on 'restructuring activities' over the same period, suggesting each redundancy cost around €100k to make. In 2017, Deutsche cut just 37 staff (net) and still spent €82m on restructuring: laying people off at DB looks a lot cheaper than it used to be.
In fact, Deutsche Bank's parsimony under CEO Christian Sewing may be much greater than we've previously suggested. Despite Sewing's reassurances that there will be bonuses at the corporate and investment bank this year (after the decision to all but withhold them for 2016), and despite yesterday's revelation that the bank accrued €70m in the second quarter and €110m in the first half towards these bonuses, the amounts look a little paltry. After all, last year's Deutsche Bank bonus pool was €2.2bn. If Deutsche has only accrued €110m for the corporate and investment bank so far, and has no intention of accruing at a faster rate in the second half, 2018's bonuses could be a shadow of the payments for 2017. Unfortunately, getting laid off and receiving severance pay doesn't look like much of a panacea.
Separately, Barclays' partiality to hiring from J.P. Morgan continues unabated. The British bank's latest ex-J.P.M. hire is Rob Jeffries, the former co-head of J.P. Morgan's chemicals group, who joins as global head of chemicals banking in New York. Jeffries' arrival follows that of at least nine senior investment banking recruits at Barclays in EMEA this year and the addition of 40 managing director and directors at the bank globally in 2017. It also comes amidst rumblings from long-serving Barclays staff that the bank's executives, who themselves joined from J.P. Morgan, have been hiring in too many expensive outsiders without tangible results.
Deutsche Bank needs to escape its vicious cycle of job cuts triggering revenue declines that require further reductions in headcount. (Bloomberg)
The only thing Deutsche Bank bank can do is to fight as hard as possible to keep every bit of revenue it can while cutting costs. (WSJ)
Deutsche Bank traders face spoofing charges. (Bloomberg)
Andrea Orcel on UBS: "I accept that UBS investment bank and its culture is not for everybody. But if you choose to work here, the expectation is that you are fully committed to the vision, the strategy and the culture.” (Financial News)
People who are sycophantic to the boss are more likely to behave badly in the presence of everyone else. (Physorg)
New commuter vehicle option: self-balancing roller shoes from Segway. (Techcrunch)
Weight gain among new fathers is a real phenomenon that deserves more attention. (BPS Digest)
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