It's that time of year when bankers everywhere worry about their bonuses. And, ever since former CEO John Cryan decided not to pay bonuses in early 2017, Deutsche Bankers have worried more than most.
There's no sign that Cryan's replacement, Christian Sewing is planning to be similarly creative with cost-cutting in the coming bonus round. However, as Bloomberg points out, Sewing certainly has issues, chief among them being the fact that he has a cost target of €21.5bn for 2019, plus the intention of generating an 8% return on tangible equity by 2022.
Deutsche Bank is holding a strategy day tomorrow when Sewing's bonus intentions may become clearer, but the good news so far is that costs appear to be sufficiently under control to preclude excessively drastic action. In the first nine months of 2019, costs were €16.5bn excluding transformation charges. However, Deutsche's new quarterly run rate is around €5.2bn, so if Sewing wants to meet his €21.5bn target he'll need to trim around €200m from costs in the final quarter. That's a lot, but it's not the whole bonus pool (which last year was €1.9bn across the bank).
Irrespective of the need to meet the cost target, it's inevitable that this year's Deutsche bonus pool will be lower this year. In October 2019, headcount in Deutsche's investment bank was effectively 9% below headcount one year earlier and front office headcount in the investment bank was down 10%. The investment banking bonus pool should therefore fall proportionately, but herein lies Sewing's problem - that's not nearly enough to achieve €200m in cost savings. And matters are made worse by expensive hiring.
In 2018, bonuses paid to 'MRTs' material risk takers (senior traders and people in positions of responsibility) in Deutsche's corporate and investment bank were €530m, or 70% of the total MRT bonus pool across the group. As Sewing looks to achieve his €200m in fourth quarter cuts, a reduction in MRT bonuses of at least €80m might seem reasonable - maybe even €100m if things get desperate, double the amount implied by the headcount cuts.
And then there's the hiring. As we reported last week, Deutsche is dabbling in the expensive waters of fourth quarter poaching from rivals. It's recruited Josh Hooker, the former head of G3 (U.S., Japan and the eurozone) rates trading, who will undoubtedly have come at a price and probably a guaranteed bonus. Meanwhile, investment bank head Mark Fedorcik informed Bloomberg that Deutsche has hired 30 managing directors and directors in corporate finance this year, all of whom may have required a sweetener.
Those sweeteners may not have come from the bonus pool. - Deutsche has a reputation for paying unusually high salaries (up to €800k for MDs on Wall Street according to some), and this may have been enough to lure people over. However, the fear will be that some of this year's bonus pool is already committed in the form of guarantees to the big 2019 hires and that this will further squeeze pay for everyone else. Given the numbers this isn't unreasonable. If you work for DB you should probably expect a 20% drop in your bonus this year - maybe even more if you're horribly realistic.
Separately, who cares if banking isn't a particularly edgy or hip profession? All you need is a spouse whose credibility can infuse your own. The Financial Times notes that spousal incomes are important to 'family identity,' such that it's not unsual for bankers to be managed to charity workers or hedge fund managers to artists. One example of this is ex-Goldman COO Gary Cohn's wife, Lisa Pevaroff-Cohn, an artist who makes mystically-infused bracelets of the kind enjoyed by bankers like Andrea Orcel.
European banks are jettisoning staff much faster than U.S. banks. For the top ten banks in Europe by market cap, staff numbers have fallen 20% since 2008. For the top 10 U.S. banks they're down 7%. (Financial Times)
Staff at Lloyds of London asked to get a grip before the Christmas party. "We’ve asked people to be particularly careful and remind their staff of the standards of behaviour that they would expect, including at Christmas parties.” (Financial News)
Revolut wants a London-based head of corporate development, who will be tasked with identifying and acquiring businesses. (Financial News)
Lawyers asked to evacuate during the London Bridge attack were reassured that they could bill later on. (RollonFriday)
Who cares about a bonus when you can bring your dog to work? (Bloomberg)
Goldman Sachs has got a special internship for people with ADHD. (Fortune)
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