There is discomfiture at Deutsche Bank. So far this year - since reaching a high of €19.8 on January 4th, the German bank's share price is down 42%. It's the kind of fall that doesn't play well when top managing directors have their entirety of their deferred bonuses withheld for 4.5 years, or when half of last year's bonuses for material risk takers in Deutsche's corporate and investment bank were paid in restricted shares that won't vest until March 2022 and then need to be held for another twelve months before they can be sold.
In the circumstances, the decision by Deutsche's major shareholder HNA Group to divest its holding in the bank, is not reassuring. The year-to-date share price fall means that Deutsche's 2017 bonus recipients have already seen last year's stock bonuses nearly halved and there are fears they could fall further still. Following various voluntary exits of senior staff, is it time for DB to introduce a new retention package?
As we've reported previously, Deutsche introduced retention bonuses under former CEO John Cryan in 2017. However, Cryan's scheme is currently worthless: it will pay only if Deutsche's shares are trading at €23 in the first few weeks of 2021; pigs are more likely to fly.
In the meantime, senior staff are trickling away. Last week's exit of Tadhg Flood, head of the financial institutions group (FIG) team for Centerview, is understood to have been a surprise internally as Flood, a DB lifer, had been saying positive things about Christian Sewing's strategy. As senior bankers seek the security of new roles elsewhere, some juniors are following. Insiders point to the resignations this week of Ethan Kok and Nicholas de Vibe, an analyst and associate respectively on Deutsche's tech banking team as symptoms of a spreading malaise.
Meanwhile, Florian Miciu, Deutsche Bank's EMEA head of equities product, who resigned around July, is understood to be arriving at Saxo Bank in London early next week - suggesting that even smaller regional banks are seen as a desirable alternative to the German behemoth.
"It’s beyond absurd here," complains one Deutsche Bank managing director. "No one ever cut their way to growth. Ever," he adds of Sewing's intention to get costs below €23bn for 2018.
Another senior DB banker says the challenging cost target means Sewing and his lieutenant, Frank Kuhnke, the COO responsible for implementing the cost cutting programming, have their hands tied when it comes to offering a new retention package to their most valued staff. "Their problem is that they can't offer anything unless this cost target is surpassed. The most they can probably hope for is that they lose enough managing directors and directors to exceed their cost target, and that they can then to try and stem the tide of exits with the savings they've made," he says.
However, the same banker suggests that this is a risky policy because the departure of too many good client-facing senior bankers will hobble Deutsche's ability to win business and therefore encourage juniors to quit too. "A one-off retention bonus (especially if it’s a target share option type) is not going to stop people leaving if it looks like we won’t win any mandates with sub-par seniors."
Of course, there is another alternative - and this is that Deutsche meets its cost-cutting target and the bank's share price rises of its own accord and keeps restless staff in situ. Deutsche declined to comment for this article, but this is clearly Sewing's aim. It helps that HNA plans to exit its stake only gradually over an 18 month period and that the stake is controlled through derivatives, which mean that the negative effect on Deutsche's share price could be less dramatic than would otherwise be the case.
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