Deutsche Bank AG (DBK) is considering reducing bonuses for investment bankers in Europe by as much as 20 percent on average for 2012, while bankers in New York will see smaller declines, said four people briefed on the matter.
The cuts may range between 10 percent and 20 percent on average in Europe, the Middle East and Africa, while bonuses in locations that performed better or where competition for staff is stronger will fall less, said the people, who asked to remain anonymous because the matter is private. The plans are preliminary and may change, they said.
Deutsche Bank, based in Frankfurt, is reducing pay and overhauling compensation for its senior executives to help boost profitability as some regulators demand rewards be tied more closely to company performance. Co-Chief Executive Officer Anshu Jain, 50, has said that he sees a risk the bank may lose talented employees if competitors don’t follow suit.
“The bank’s earnings fell last year, so it makes sense for bonuses to decline,” said Philipp Haessler, an analyst at Equinet AG who recommends investors buy the shares. “The interesting question will be whether Deutsche Bank can lower its compensation ratio in good years as well.”
The company will finish setting bonus levels and relay its decision to some employees as early as this month, the people said. The bank may also cap the immediate cash portion of bonuses for 2012 as it did the previous year, said one person familiar with the discussions. The firm is scheduled to publish 2012 earnings on Jan. 31.
Ronald Weichert, a spokesman for Deutsche Bank, declined to comment on bonuses.
Bankers at U.S. firms are also facing pay reductions or job losses as revenue growth wanes. JPMorgan Chase & Co. (JPM), the nation’s biggest lender by assets, may shrink the bonus pool for the corporate and investment bank by as much as 2 percent, three executives with direct knowledge of the process said last month.
Citigroup Inc. (C), the third-biggest U.S. bank, plans to trim bonuses by as much as 10 percent, excluding top performers, at the trading and investment-banking division, people with direct knowledge of the decisions said in November.
Deutsche Bank named a panel of business executives and a former German finance minister in October to review its pay system and make recommendations that will affect compensation practices for last year.
The bank said Sept. 11 that it will increase the vesting period for deferred bonuses for about 150 top executives to five years from three, and will make a single payout after the deferral period ends rather than staggered payments every year.
Compensation at its corporate and investment bank, which includes transaction banking, fell 3 percent to 4.14 billion euros ($5.54 billion) in the first nine months of 2012 from a year earlier, company filings show. That was enough to pay the division’s 14,378 employees an average 287,800 euros each.
Deutsche Bank plans to reduce costs by 4.5 billion euros a year by 2015 and its expenses as a portion of revenue to less than 65 percent by 2015 from 78 percent in 2011, according to company filings. That will help boost after-tax return on equity, a measure of profitability, to more than 12 percent by 2015 from 8 percent in 2011, the bank said Sept. 11.
Europe’s sovereign-debt crisis has cut demand from Deutsche Bank’s clients, while earnings may also be pressured by capital rules, known as Basel III. The bank said last month that fourth- quarter profit will be “significantly” reduced as it offloads riskier assets to meet capital requirements and faces reorganization costs to counter a slump in business.
Deutsche Bank closed at 36.87 euros in Frankfurt trading and climbed 12 percent this year.
Deutsche Bank’s bonus payments as a percentage of net revenue fell to 11 percent in 2011 from 22 percent in 2006, company filings show. The lender shrank its 2011 bonus pool by 17 percent and deferred about 61 percent of the total amount, the company said last February.
Jain, at a conference in London in September, called on investors to demand other firms follow Deutsche Bank’s plans in changing compensation policies.
“We have taken a bigger first step than most of our competitors,” he said. “Is there a risk that our competition doesn’t follow suit? Only if you are willing to accept low ROEs with unchanged compensation practices elsewhere.”
Barclays Plc (BARC) will also cut pay for investment bankers by as much as 20 percent to help cut costs, Reuters reported today, citing two people with knowledge of the matter it didn’t name. Barclays spokesman Simon Eaton in London declined to comment.