In The News
29 Jan 2014

Deutsche Bank cuts investment bankers’ pay 14%



Deutsche Bank cut overall pay for its investment bankers by 14 per cent last year in a move that heightened concerns over European banks’ competitiveness versus their US peers.

Germany’s largest lender, the first European bank to report on pay this year, slashed salaries, bonuses and other benefits in its corporate banking and securities division to €5.3bn as revenues dropped 12 per cent and staff levels sank 2 per cent.

The move comes as co-chief executives Anshu Jain and Jürgen Fitschen are forced to cut pay faster to please investors, regulators and the political establishment in Deutsche’s home market.

But remuneration experts say they are walking a tightrope. “Over the last couple of years European investment banks have been reducing pay quicker than their US counterparts,” Tom Gosling, head of PwC’s reward practice said. “If they want to stay competitive there’s a limit to how much more they can do that.“

US banks have recently benefited from more resilient revenues and a comparatively benign regulatory and political climate. Goldman Sachs has reduced overall pay 2.6 per cent last year amid almost unchanged revenues, while JPMorgan paid 4 per cent less in the investment bank and Morgan Stanley has shrunk pay 2.2 per cent.

Mr Jain insisted that while European regulation had “tilted the playing field”, the bank was not losing any key people as a result.

But he did suggest that pay restrictions could affect the bank’s ability to hold on to some staff. “For the people that just want to be here to maximise their short-term money, if we wind up losing them, so be it: more than happy to do that,” he said.

Analysts pointed out Deutsche’s 14 per cent cut in pay exaggerates the real reductions for client-facing bankers, as the lender now reports back-office workers in a separate infrastructure arm and allocates their pay costs partly depending on the revenues in each unit.

In depth

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They said Deutsche might be forced to do more as the bank’s slump in trading revenues left it trailing rivals in the crucial compensation to revenue ratio, a measure investors use to gauge how much of the spoils are being given to staff instead of shareholders.

Deutsche paid 39 per cent of its investment bank revenues to staff in the past year, compared with 37 per cent at Goldman and 30 per cent at JPMorgan. European rival Barclays had a 41 per cent ratio in the first nine months but Antony Jenkins, its chief executive, is targeting about 35 per cent in the future.

Barclays and Deutsche have been hit hard by a drop in their main profit engines of trading bonds and other fixed-income securities last year. The weakness in fixed-income trading across the sector has been so forceful that it has also dragged down bonuses in better performing areas such as equities trading.

“Clearly equities would have made more money if fixed income made money,” said Alan Johnson, managing director of Johnson Associates, the pay consultants. “It impacts bonuses for everybody, pulls down total funding for the whole firm.”

Only 52 per cent of London-based equity traders at US banks Goldman, JPMorgan, Morgan Stanley and Citigroup received a higher bonus this year while 45 per cent were paid less, according to Emolument, which collects pay information directly from bankers to help them compare their personal remuneration.

It reverses a previous trend, said John Ricco, partner at The Atlantic Group, the recruitment company: “In the past, bond trading bonuses subsidised equity trading bonuses in times of tough equity markets.”

But there is a silver lining for many bankers as some will receive a windfall from share-based bonuses that vest this year and were awarded three years ago at low stock market prices.

Source: Banks