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Deutsche Bank Guts Bonuses

It was a simple complaint from some shareholders for 2015: If they don’t get a dividend, neither should Deutsche Bank’s employees get any fat bonuses.

Germany’s largest bank seems to have accepted that logic for 2016. The bank on Monday announced that “variable compensation” was gutted by 77 percent compared to the previous year, down to just €0.5 billion, or $0.54 billion.

Senior executives on the management board passed on any variable compensation for the second year in a row, including Chief Executive John Cryan, long a critic of high payouts in the banking sector. He will also accept a drop in his own salary this year by €400,000 to €3.4 million.

In addition to senior management, individual bonuses were scrapped this year. The only variable compensation handed out was for specific group performances.

There’s a simple reason for that stinginess: Deutsche Bank has been in a world of trouble these last two years. It reported a net loss of €1.4 billion in 2016 after a record €6.8-billion loss for 2015 as massive legal fees stemming from wrongdoing in the run-up and aftermath of the 2008 financial crisis had eaten into profits.

Dividends for shareholders were scrapped in both years as a result (though a recent court case is forcing the bank to reverse that policy and issue a small dividend for both years).

Above all it was investment bankers, responsible for most of the bank’s legal troubles, who were forced to suffer the cuts. The number of millionaires at the bank plummeted 60 percent, leaving 316 people in a bank of nearly 100,000 employees. The total compensation handed out for so-called “material risk takers” – investment bankers that take greater gambles with the bank’s money than retail bankers – was cut 40 percent to €1.6 billion.

Overall compensation also fell – down to €8.9 billion from €10.5 billion in 2015.

Both shareholders and employees will be hoping for a return to some measure of normalcy this year. Deutsche Bank thinks many of its legacy costs are behind it, though it is still in the middle of a major restructuring of its operations. The bank doesn’t really expect to post consistent profits until 2018 or later, and earlier this month announced it would need another €8 billion in a capital increase to push that restructuring through.

Investors have remained glum: the bank’s shares fell more than 3 percent Monday on the release of Deutsche Bank’s annual report to €17.32 at 11:45 A.M. in Frankfurt trading. That made it the worst performer of the morning in Germany’s blue-chip DAX.

 

Christopher Cermak is an editor with Handelsblatt Global in Berlin. Julia Rotenberger of Handelsblatt contributed to this story. To contact the author: cermak@handelsblatt.com

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