Buying Time

Deutsche Delays Decision on Bonuses

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There might not be much money for Deutsche Bank's investment bankers this year.
  • Why it matters

    Why it matters

    • Deutsche Bank may have to cancel bonuses and dividends if it posts a loss for 2015. The delay will give it a clearer picture of its year-end performance before taking a decision.
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  • Facts

    Facts

    • Bonuses for top managers and traders at Deutsche Bank will be delayed one month next year, from February to March.
    • This timing will also apply to subsequent years, to allow top managers to better assess the full-year performance.
    • The bank will report third-quarter results October 29, when it will release details of a new restructuring plan it calls Strategy 2020.
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    Audio

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A week before Deutsche Bank is expected to post a record third-quarter loss, its new co-chief executive dropped some more bad news on employees.

As Germany’s largest bank struggles to return to profitability, Co-Chief Executive John Cryan moved to buy more time before deciding whether to award employees with bonuses for top managers and traders. That will give Deutsche Bank more leeway in assessing its finances in early 2016 — and possibly shift some costs back to the final quarter of 2015.

Total pay and cash bonuses are usually announced in February, but that has now been pushed back to March. The bank’s personnel division informed the works council of the change by letter last Friday. Handelsblatt obtained a copy of the letter, and an official announcement to bank employees is expected soon.

The letter to the company works council said the board and top managers needed “better and more comprehensive knowledge of the final business result for 2015” before deciding the level of variable pay for the year.

Changing when bonuses are awarded to non-tariff employees — most who work in top management and investment banking — brings them into line with the timing of payments to employees governed by collective tariff agreements.

The structure of bonuses will remain almost unaltered, according to the letter. In 2014 nearly half of variable remuneration was paid in cash, and some of the rest spread over five years. The later date gives the board more time to determine the absolute levels being paid out.

The bank will report its third quarter results on October 29, when it also will release details of a new restructuring plan known as Strategy 2020 – a massive overhaul that is expected to include thousands of job cuts across the bank and the closure of many of its retail divisions outside of Europe.

Two weeks ago, the bank announced it would post a record loss of €6.2 billion, or about $7 billion, for the third quarter. Officials said that would take into account huge value adjustments, amortizations and provisions. That would mean losses of €1 billion for the first nine months of 2015—and it’s possible the bank could end up losing money for the whole year.

In a letter in early October, Mr. Cryan warned that, given the possible losses, the dividend for shareholders would either be reduced or canceled altogether. He also prepared employees for a reduction in bonuses. He wrote that stockholders would justifiably expect staff to bear some of the burden, rather than merely shareholders losing out. He emphasized that he wanted to achieve a fair balance, and now has asked for an extra month in which to see how this will pan out.

The letter to the company works council said the board and top managers needed “better and more comprehensive knowledge of the final business result for 2015” before deciding the level of variable pay for the year. The added time buffer would allow decisions about the distribution of variable remuneration to be properly examined on either a divisional or individual level.

 

118 Deutsche Bank-01 WTB 2014

 

What it all means is that Deutsche Bank doesn’t want to make a decision on bonuses until it has officially closed the books on the previous year. Adjustments are possible in the first months of the new year, and can affect results for the final quarter of 2015.

In February 2014, for example, the bank ended a long legal battle with the heirs of late media entrepreneur Leo Kirch — and were able to book the €925 million settlement with the Kirch family back to the final quarter of 2013.

The bonus delay signals a similar move is possible in early 2016, as the bank confronts record fines, damaging lawsuits and tough new regulations that weigh down investment banking. At the same time, positive effects cannot be excluded either.

The letter to the works council explained the decision to delay bonuses “reduces the risk of subsequent discoveries of financial or regulatory aspects making unsustainable the levels of remuneration which had been communicated.”

An added consequence of delaying bonus means March will be the new payment date in subsequent years as well.

 

Laura de la Motte is an editor at Handelsblatt in Frankfurt who covers banking and finance. To reach her: delamotte@handelsblatt.com

 

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