Deutsche Bank: the safest $800k salaries in the market
So said CEO Christian Sewing in his introduction to today's 'Investor Deep Dive' into how the bank's doing under his new strategy. The number of client-facing staff across the group, including in the corporate and investment bank, will "remain almost unchanged from 2019 onwards," said Sewing. "This will support our revenue and market share ambitions," he added.
Sewing's reassurances come after nearly 2,300 people were cut from Deutsche's combined investment bank and capital release unit (which comprises the unwanted business areas of the investment bank) in the year to October 2019, a reduction of 16%. At the end of the third quarter there were around 10,000 people working in the front office of Deutsche's investment bank. Many of them are on unusually high salaries: average fixed compensation for Deutsche's 1,100 material risk takers was nearly $800k in 2018, compared to $620k at UBS and $556k at Credit Suisse. 643 people across Deutsche earned in excess of €1m last year year. If they're still there, they're now sitting comfortable until at least 2022.
Deutsche is made all the more cosy by the fact that within a period of four short months the investment bank has gone from being a problem child to Deutsche's second most shiny business area. After updating its growth targets today, Deutsche is now expecting 2% annual growth from the investment bank, 1% growth in asset management and no growth at all in the less-loved private bank. Only the corporate bank under the precocious Stefan Hoops is expected to do better.
Happy times in the investment bank are already evident. Sewing said today that trading revenues are up by "healthy double digits" in the fourth quarter and that there is now a "clear path to a post-tax RoTE of between 7% and 8% in 2022," which is all the more impressive given that the comparable number for the first nine months of 2019 was less than 2%...
While Deutsche's front office bankers are frolicking in Sewing's flattery, however, the cost-cutting elsewhere is not entirely over. As today's strategy presentation explains, another €1.2bn in costs are to be taken out of the investment bank. Most of these (€0.9bn) of these are expected to come from the back office, where Deutsche is now using a 'driver-based' cost management programme' to map infrastructure costs to business units on a more granular basis. The bank says it's preparing to reduce headcount in infrastructure functions and to 'optimize locations' (something which might sound ominous to people in the Birmingham office).
Eagle-eyed Deutsche people might note, though, that if €0.9bn of the €1.2bn of costs that are to be removed between 2020 and 2022 are coming out of the back office, this still leaves €300m to be cut elsewhere. Despite avowing not to cut any more client-facing bankers, Deutsche said today that a further €200m in front office investment bank cost cuts will need come from "increased expense discipline."
What does expense discipline mean? Deutsche doesn't elaborate. However, for existing staff those ultra-high salaries are here to stay. That leaves the investment bank bonus pool, which was €530m for material risk takers last year. A 40% reduction in front office bonuses may therefore not be entirely out of the question. After all, Deutsche is now a high-performing investment bank and it just achieved its highest employee satisfaction rating for five years. Premium pay is no longer necessary; people may soon be queuing up to work there.
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