It looks like Deutsche Bank CEO Christian Sewing is really going to have his work cut out for him this bonus season, just as we expected.
According to a Bloomberg report published Friday morning, sources with inside knowledge said DB is going to be cutting its bonus pool by 20%, making Sewing's task of retaining top talent even more difficult than it would have otherwise been.
The 20% cut far outpaces the 5% reduction in headcount that's taken place in 2019. But Sewing has promised DB shareholders $6 billion in cost cuts as part of his turnaround strategy, and for that to work, there's no way the bonus pool can go untouched.
It's a problem because, as BBG explains, Sewing has pitched DB's moribund investment bank as the centerpiece of his turnaround strategy. After selling off or shuttering unprofitable businesses, Sewing is hoping to restructure the investment bank, focusing on advisory and corporate banking, while moving away from trading. But all of those businesses rely on rainmakers at the top to bring in the business.
Sewing will need skilled managers and dedicated people in the top positions to make the turnaround work. Unfortunately, revenue at the investment bank, which is led by Mark Fedorcik and Ram Nayak, was down 11% in the first nine months of 2019, while pretax profit plummeted by 47%.
The banks is already suffering from considerable brain drain. In the months before Sewing announced his $8 billion "reinvention" of DB earlier this year, a raft of senior executives left the bank, and even more personnel left after Sewing warned that the bank would seek to cut its headcount substantially in the coming years by getting rid of roughly 18,000 jobs.
Despite the investment banks weak results for 2019, Sewing has said that “momentum” has been improving, though the investment bank's turnaround is anything but certain. Apparently, DB's PR team has managed to convince the financial press that, five months in, Sewing's turnaround plan is starting to show some improvements.
Of course, a shrinking bonus pool is nothing new for DB employees: the bonus pool has been shrinking for years.
One factor acting in Sewing's favor is the fact that DB likely won't be alone among its European banking rivals in handing out smaller bonuses this year. But with DB shares still struggling to climb off of all-time lows, and many still in doubt, Sewing is going to need to make those bonus dollars stretch as far as he can. And that means there will undoubtedly be thousands of young bankers at DB who go home disappointed this Christmas (if they're not working through the holidays, that is).