Germany’s largest bank, Deutsche Bank AG (DBK) has restructured the salaries and compensation for its workforce, cutting it a total reduction of 23 percentage points in the investment bank division. This reduction in compensation, slashing salaries and bonuses by 300 million Euros, is a reaction to a prolonged earnings decline in the Corporate Banking and Securities division, with a plunging fourth quarter earnings report compared to a year prior.
While this reduction in salaries was somewhat larger than expected, it was not a surprise; new regulations in the aftermath of the 2008 banking collapse have required greater capital levels, and commensurate reduced profits and earnings to go with the reduction in risk to shareholders.
A more detailed analysis of the troubled investment arm shows a 27 percent reduction in investment banking revenue compared to a year earlier. Debt trading was also down, with a 31 percent reduction from the year previous. While compensation has been cut, the total headcount in the division only fell by 2.4 percent. Most of the staff has been retained, and it’s hoped by many in the bank that when the balance sheet is in order again, that compensation can rise in the form of bonuses.
According to Co-Chief Executive Officer Anshu Jain, the staffing reductions and compensation reductions are part of a balanced plan, including reducing some of the banks liabilities on balance sheets, to maintain viability in a more austere banking environment. He sees ongoing concerns stemming from the loss of talented employees, particularly if competing banks maintain higher compensation levels.
Deutsche Bank’s fourth-quarter earnings for 2013 showed a net loss of 958 million euros, and recorded a surprise pretax loss of 1.15 billion euros on legal costs and accounting charges. For shareholders, the reduction in compensation packages triggered an immediate 1.9 percent rise, but the bank’s share price is still lagging the average annual gain for the Bloomberg Europe 500 Banks and Financial Services Index.
Germany’s new banking regulations are slightly stiffer than the new norm for international and domestic investment banking. American banks, under less stringent restrictions, look to retain their lead in debt trading for the next few years. Whether this turns into a competitive disadvantage for Deutsche Bank in the long term remains unknown. While U.S. banking is down, it’s only down by single digit percentages. Meanwhile, Deutsche Bank is attempting to right the ship in the troubled waters of restructuring and ongoing litigation, as well as a somewhat punitive regulatory landscape.