Deutsche Bank's managing directors don't really deserve bonuses anyway

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Blame the, "challenging market conditions." Blame the, "DB specific newsflow." Blame the "strategic decisions," the "strategic repositioning." Blame the weather. Deutsche Bank's fourth quarter was in keeping with the rest of its year: weak. And Deutsche Bank's bankers and traders will see this reflected in their pay during the coming bonus round.

You can see Deutsche Bank's growth performance relative to its rivals in the fourth quarter and for 2018 as a whole in the charts at the bottom of this page. Although CEO Christian Sewing today praised Deutsche Bank's fixed income sales and trading business, which he said has a "fundamental" strong market position globally, Deutsche's fundament doesn't look so great. Fixed income sales and trading revenues plummeted in the fourth quarter. Nor were they pretty for the year as a whole.

During 2018, revenues fell in every single business line at Deutsche's corporate and investment bank, even while other banks enjoyed strong growth. Witness the sorry shrinkage in equities sales and trading in particular.

None of this bodes well for Deutsche Bank's 2018 bonuses. Only a few delusional souls were expecting them to be special anyway, but today's results confirm the coming lack of spectacle. Compensation spending fell 30% year-on-year in Deutsche's corporate and investment bank in the fourth quarter as the bank failed to replicate last year's rush to boost the bonus pool in the last few months. For 2018 as a whole, compensation spending at Deutsche's corporate and investment bank was down 9%. This was mitigated by a corresponding 8% reduction in headcount (down 7% in the front office), but Deutsche dispelled any delusions that bonuses will be unaffected. Today's presentation said falling compensation spending was down to, 'lower salary expenses reflecting headcount reductions and lower variable compensation.' Bonuses in other words.

Given their comparatively miserable performance, most Deutsche Bank staff don't appear to deserve much in terms of bonuses anyway for 2018. Some, however, did have a good year - or at least a good fourth quarter - and may feel the bank's penury is unnecessarily punishing. Deutsche's emerging markets and FX traders apparently had a fine end to the year. So did its equity derivatives traders. It's just a shame that their colleagues in cash equities, rates, debt capital markets and credit trading all let them down.

Deutsche Bank has a history when it comes to allocating a diminished bonus pool. The bank typically takes away from its managing directors (MDs) and gives to the lower ranks. Staff below assistant vice president level (a kind of exalted term for an associate) at Deutsche Bank were taken out of the bonus pool by John Cryan in 2017 anyway, and nowadays only receive small "recognition awards." Therefore, if Deutsche performs its usual trick of taking from MDs to keep juniors happy, it's the vice presidents and the assistant vice presidents who should be the beneficiaries in 2018.

In the equities division, this seems to be the expectation. "Equities MDs are going to have their bonuses cut by up to 30%," alleges one DB insider. "But some of this will be used to pay the good VPs and AVPs, who can expect a bit more."

Whether they deserve bonuses or not, Deutsche needs to keep its people happy. After a year of 'strategic repositioning,' Christian Sewing today reiterated that the bank is ready to go for revenue growth. Deutsche even wants to do some hiring, with "targeted investments" in fixed income sales and trading, debt capital markets and coverage in Asia and the Americas. The problem will be keeping existing staff motivated while new ones (on potentially generous guarantees) come through the door.

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