Business is less than buoyant at Deutsche Bank, yet Germany's largest lender appears ready to shower its managers with bonuses. Despite making its third-consecutive loss in 2017, the bank is mulling performance-related payouts of over €1 billion ($1.2 billion), according to a German newspaper report. The reason, according to the bank, is to avoid a brain drain of talent to Wall Street rivals. But politicians are fuming, especially on the left.
In the run-up to this Friday’s annual results conference, there had been a furious debate about bonuses on Deutsche’s board. Bonuses amounted to €2.4 billion in 2015, but were slashed to €500 million after profits nose-dived the following year. According to insiders, the feud about the size of 2017 bonuses erupted late last year, with CEO John Cryan said to be opposed to an increased payout. That was even before the bank announced earlier this month that Deutsche would make a slight loss for 2017, due in part to changes in US accounting practices for tax credits. Despite that, Mr. Cryan is said to have backed down on the issue, according to the Frankfurter Allgemeine Sonntagszeitung.
Following job cuts in several industries, including at German household names such as Siemens and ThyssenKrupp, the news was just too much for some German politicians. "Everywhere bank branches are closing, customers are losing their advisers, consultants their jobs,” bemoaned Martin Schulz, head of the center-left SPD party. In this situation, €1 billion in bonuses "not only damaged the bank’s reputation, but our entire community of solidarity.”
If returns still do not bubble up in a few years, the unthinkable could happen. Ingo Speich, Union Investment
Angela Merkel’s government also took the opportunity to take a swipe at Deutsche Bank, a familiar occurrence whenever the topic of executive bank bonuses comes up. While Deutsche is a private enterprise, “the management of the company should of course ask what an impression this makes in the public eye,” said Steffen Seibert, a government spokesman.
Shareholders are no happier. The bank's share price slid another 0.8 percent in Monday trading in Frankfurt. Ingo Speich, a fund manager at Union Investment – a major shareholder of Deutsche Bank – suggested bonuses should be distributed only to those who add genuine value to the company, especially given the dire consequences if profits do not follow. "If returns still do not bubble up in a few years, the unthinkable could happen: a break-up of the bank and a merger with other major European banks," he told Die Welt on Sunday newspaper.
Some of Deutsche Bank’s top executives, including board members Marcus Schenk and Christian Sewing, have defended these hefty payouts, saying the bank would otherwise lose valuable talent that keeps the institution competitive. “It’s an investment decision like at a soccer club. If you want to compete for a title, then you just have to keep or get certain players,” Mr. Schenck, who runs the investment banking division together with Garth Ritchie, told Handelsblatt in a recent interview.
To make matters worse, US derivatives supervisor CFTC announced plans to impose a fine in the millions of dollars for alleged manipulation of the American futures markets, according to Deutsche Bank insiders. An exact amount of the planned fines was initially unknown.
Daniel Schäfer is Handelsblatt’s finance editor and Michael Maisch is deputy finance editor. Katharina Slodczyk is a Handelsblatt finance reporter based in Frankfurt. To contact the authors: [email protected], [email protected], [email protected]