Activist (or perhaps masochist) investors Cerberus Capital and Hudson Executive Capital have been pleading with Deutsche Bank to scale back its US operations and focus on Europe. But after drastically reducing the size of its American i-bank last year, which saw the bank's revenues take a sharp hit, Deutsche decided to reward its remaining American employees with the lion's share of the 2018 bonus pool, Bloomberg reported. Meanwhile, many of the bank's employees in Europe and elsewhere got nothing.
Shortly after taking over a year ago, Sewing announced deep cuts to DB's US rates sales and trading,as well as its corporate finance business, yet the bank hasn't given up on its US i-banking business just yet. In an indication of just how much importance the bank has attached to the revival of its once dominant investment bank, Sewing’s compensation for 2018 totaled some 7 million euros, while the bank’s I-banking chief Garth Ritchie received 8.6 million.
DB CEO Christian Sewing's 2018 bonus was 'this big'.
The bonuses are the latest sign that, despite mounting pressure for a merger with Commerzbank and political rhetoric about the recidivist bank forming part of a new 'national champion', Deutsche hasn't given up on its pre-crisis ambitions to one day compete with US banking juggernauts like JPM on a global scale.
The total amount set aside for 2018 fell to 1.9 billion euros ($2.2 billion) from 2.2 billion euros a year earlier, Deutsche Bank said Friday.
The bulk went to the US, which suffered some of the deepest headcount reductions, according to a person familiar with the matter. Top management including Chief Executive Officer Christian Sewing received their first bonuses in four years after returning the bank to a small profit.
Deutsche paid out €1.9 billion ($2.2 billion) in bonuses in 2018, compared with €2.2 billion ($2.5 billion) the year before.
By recommitting to the bank's US operations, CEO Christian Sewing has effectively given German officials and the bank's biggest investors the kiss-off. Nearly every stakeholder in the bank besides Sewing (including the bank's chairman, Paul Achleitner) wants the bank to shrink its presence outside of Europe, even after the bank managed to eke out a small profit in 2018, following three years of losses.
Sewing has repeatedly said that the bank remains committed to its presence in the U.S. That’s even though some large shareholders have urged deeper cuts, people familiar have said. The investment bank unit in the country is struggling with profitability, with the equities portion not having made a profit in many years, people familiar have said. The situation is compounded by regulatory scrutiny after the lender last year failed a stress test.
Following a difficult year for banks, which was particularly hard on European banks, as negative yields continued to squeeze net interest margin, European lenders have slashed bonuses across the board. As BBG pointed out, DB's bonus pool has been shrinking since 2010, as the bank has struggled to boost profitability and comply with EU banking regs.
Though the bank's European employees have been at the center of a crush of scandals, including the latest money laundering probe launched by Frankfurt officials, it's US division hasn't been entirely free of blame for the tens of billions of dollars in fines the bank has paid out since the crisis - including its massive 2016 fine for misleading buyers of mortgage securities during the crisis.
But by signaling that he has no plans to further shrink DB's American investment bank, has Sewing shown that he hasn't given up on an independent Deutsche Bank, and that the German finance ministry can take their "merger of weakquals" and pound sand?