Deutsche Bank needs a generation of MDs to retire
Curiously, for a bank committed to a strategy of reducing its headcount by 18,000 people, Deutsche Bank still seems to be busy hiring. Data from Burning Glass indicates that the German bank more than doubled the number of jobs it's advertised in the U.S. over the past three months (to 137 open positions), even while other banks cut hiring substantially.
Burning Glass data isn't infallible, but the like for like figures suggest DB might find it harder to cut headcount than expected. Speaking at this week's Bank of America's annual financials conference, Deutsche Bank CFO James von Moltke said that because fewer people are leaving DB voluntarily, the bank is behind on its cost reduction plans and may need to pay more in severance as a result.
Von Moltke's statement raised eyebrows among some senior insiders at Deutsche Bank in Frankfurt who suggest the bank will struggle to afford severance payments for the 13,000 or so staff it has left to cut. "Deutsche has made very little provision for these severance costs," says one MD. "The plan was to let people leave or retire."
This appears to be borne out by historic figures for severance spending: in 2019, despite making big cuts to its equities division and despite headcount across the group falling by over 4,000 people, Deutsche only made severance payments to 213 ex-staff according to its own compensation report. The average severance payment paid in 2019 was €329k, although given that one fortunate ex-DB person received €11m, the remaining 212 received an average of €278k.
If Deutsche were now compelled to pay €278k each in severance to 13,000 people it would be left with a bill of €3.6bn. Even severance of €100k each would leave a substantial €1.3bn hole.
For this reason, DB insiders suggest that what the bank really needs to do is to wait this out. Last year, just over 7,000 people left the bank voluntarily, with no need of severance payments to speed them on their way. "This problem will solve itself naturally," says the MD. "All you need is for the senior managers to retire and claim their pensions."
Given that Deutsche Bank is famously top-heavy, this is probably Von Moltke's best bet. In an ideal world, the bank might offer its most unproductive managing directors (MDs) packages to encourage early exits. In the current reality, this seems unaffordable. The only problem, then, is that for the foreseeable future Deutsche shouldn't really be hiring anyone, or replacing anyone who leaves. This could make life tough if individual workloads increase. In the meantime, one thing at least is clear: as Deutsche attempts to encourage people out the door, managing directors and senior managers can expect to have their pay squeezed.
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