Investors criticize high pay at the new feel-good Deutsche Bank

These are happy times indeed at Deutsche Bank. The German bank is holding its AGM this morning and following a fortuitous combination of events spanning from the failure to lose billions on Archegos, a potential ratings upgrade from Moody's, a four times over subscription of demand for its recent issuance of tier one capital instruments, and strong revenue growth in the investment bank, things are feeling good. CEO Christian Sewing said today that Deutsche Bank staff loyalty is at its highest since 2012; 76% of employees support the bank's strategy. All is well.

Alongside all those indisputable achievements, however, some of the love at DB might also be related to the fact that employees in the investment bank were paid very, very well last year. As we reported in March, the German bank ratcheted up pay for its high performers, such that the average of 925 material risk-takers in the investment bank (typically a trader, senior banker, or senior manager) had his or her bonus increased by 71%. The bonus pool across the investment bank was up by 46%.

The upshot of this largesse was that 684 people earned over €1m at Deutsche Bank in 2020, compared to 583 in 2019. Combine that with a 71% increase in the bank's share price over the course of 2020 - benefitting anyone who received deferred bonuses in previous years - and you can see why DB people have been feeling so very favourable.

Today's AGM suggested that investors aren't quite so warmly inclined. While they're appreciative of all the good things going on at Deutsche Bank, last year's big increase in pay hasn't escaped their attention. "Variable remuneration was up 29% in 2020, which is excessive in a year when the Bank just about generated €1 billion before taxes," complained Andreas Thomae, portfolio manager at Deka Investment. "A larger share of the bonuses were deferred, which will have a more pronounced impact on future earnings. The Bank has made strides in improving its operations, but bonuses should be paid out based on actual profits and not as a down payment for the future."

Handlesblatt cites a similar complaint from Klaus Nieding, Vice President of the German Association for Protection of Securities, who said lavish bonuses were being distributed to employees while shareholders have been going away empty-handed.

Like any good CEO, Sewing isn't blind to shareholders' whinges. He's committed to distributing €5bn to shareholders from 2022 and already accrued €300m for dividends in the first quarter of this year.

As Deutsche Bank shareholders have their concerns assuaged, however, the risk is that Deutsche Bank's salespeople and traders - who are driving the bank's return to growth and profitability - will have their bonus expectations disappointed. In the first quarter, profits in the investment bank rose by 134%, but spending on compensation was held roughly stable. With investors already questioning why Deutsche Bank's bankers and traders are being paid so much, and with bankers and traders likely expecting further pay increases in 2021, Sewing is engaged in a delicate banking act. 

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