These are indeed happy times at Deutsche Bank. The German bank is holding its AGM this morning and following a fortuitous combination of events ranging from failed billion loss on Archegos, possible Moody’s rating upgrade, four-fold on-demand subscription higher for its recent senior equity issue, and strong growth in investment banking income, things are going well. CEO Christian Sewing said today that staff loyalty at Deutsche Bank is at its highest since 2012; 76% of employees support the bank’s strategy. All is well.
Along with all of these unmistakable accomplishments, however, part of the love at DB could also be related to the fact that the investment bank employees were paid very, very well last year. As we reported in March, the German bank raised the salaries of its top performing companies so that the average of the investment bank’s 925 significant risk takers (usually a trader, senior banker, or senior manager) saw his bonus increased by 71%. The investment bank’s bonus pool increased by 46%.
The result of this largesse was that 684 people earned more than one million euros at Deutsche Bank in 2020, up from 583 in 2019. Combine that with a 71% increase in the bank’s share price in 2020. course of 2020 – for the benefit of anyone who received deferred bonuses in 2020. previous years – and you can see why the folks at DB felt so supportive.
Today’s AGM hinted that investors aren’t as keen on the idea. While they appreciate all the good things happening at Deutsche Bank, last year’s big pay rise has not escaped their notice. “Variable compensation increased by 29% in 2020, which is excessive in a year when the Bank generated around 1 billion euros before taxes”, lamented Andreas Thomae, portfolio manager at Deka Investment. “A larger portion of premiums has been deferred, which will have a more pronounced impact on future earnings. The Bank has made progress in improving its operations, but bonuses should be paid on the basis of actual profits and not as a down payment for the future. “
Handlesblatt cites a similar complaint from Klaus Nieding, vice chairman of the German Association for the Protection of Securities, said lavish bonuses were handed out to employees as shareholders left empty-handed.
Like any good CEO, Sewing doesn’t ignore the whims of shareholders. It has pledged to distribute â¬ 5 billion to shareholders from 2022 and has already accumulated â¬ 300 million in dividends in the first quarter of this year.
However, as Deutsche Bank shareholders see their concerns assuaged, the risk is that Deutsche Bank sellers and traders – who are driving the bank’s return to growth and profitability – will have their bonus expectations dashed. In the first quarter, investment banking profits rose 134%, but compensation expense was roughly flat. With investors already wondering why Deutsche Bank’s bankers and traders are paid so much, and bankers and traders are likely to expect further salary increases in 2021, Sewing is engaged in a tricky banking act.
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