Deutsche Bank results mostly cheering for these particular traders
A heads-up: if you've been working for Deutsche Bank this year, you probably won't get a large bonus. This is perhaps ok, given that Deutsche Bank is stuck with paying large salaries, but any residual bonus hope should be gently snuffed out following today's third quarter results.
Deutsche Bank has a few goals that it's trying to achieve by 2025. These include: a post-tax return on tangible equity of more than 10%; a cost income ratio of 62.5%; and compound annual revenue growth of 3.5% to 4.5% between 2021 and 2025. It's putting a brave face on it, but today's results suggest that with just over a year to go, things are not moving in the right direction. In the third quarter, Deutsche's RoTe was 6.5% and its cost income ratio was 72.4%. Total revenues at the bank grew 3.1% year-on-year.
The misses were perpetuated in the investment bank, where Deutsche has been doing some big hiring of M&A bankers and yet advisory revenues were down...46% in the first nine months of the year and 22% in the third quarter. This is despite the addition of 50 senior bankers in the first six months alone.
It's not just directors and managing directors in investment banking that Deutsche has been going after. Today's results show front office headcount in the investment bank increasing by nearly 300 people year-on-year to the end of September. When infrastructure staff are added in, headcount is up by 1,412 people. Like Citi, Deutsche has also been adding control staff. Like Bank of America, it's also been hiring in fixed income sales and trading with "strategic investment into coverage and product teams." In some good news, it says this latter investment helped drive "significantly higher" revenues in credit trading, and particularly in distressed credit trading.
Last time Deutsche Bank had a great year in distressed debt trading, one particular 35-year-old trader was held responsible: Mark Spehn on the London distressed debt desk. Spehn is now 37 and despite rumours that he was leaving a year ago, is thought to be still in situ. He and his colleagues look like the ones cheering the most at Deutsche Bank this quarter.
Deutsche's leveraged finance team also didn't do too badly, though. The bank said today that its leveraged debt capital markets business recovered market share in the third quarter and 'more than offset' declines in the bank's investment grade debt and advisory revenues.
Elsewhere, it looks painful. With revenues in the investment bank down 12% year-on-year in the first nine months, Deutsche is trying to keep a grip on spending. With profits down 35%, it's not succeeding. But it is showing signs of squeezing pay: headcount may be up 14%; spending on pay is only up 5%. A difficult bonus season is coming.
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