Deutsche Bank AG co-Chief Executive Officer Anshu Jain said he plans to deal with most of the bank’s legal costs by the end of the year, after the expenses contributed to lower pay for its investment bankers.
“We’re hopeful that toward the end of 2014, we will have the bulk of it behind us,” Jain said in an interview with Bloomberg Television in Frankfurt today, referring to the expenses.
Deutsche Bank, Europe’s biggest investment bank by revenue, is among lenders implicated in alleged rigging of interest rates and currencies as well as misselling of U.S. mortgage products. It had 2.5 billion euros ($3.4 billion) of legal costs last year as it settled a European Union probe into banks colluding to rig benchmark interest rates and allegations by U.S. housing agencies that it didn’t provide adequate disclosure about mortgage-backed securities.
Jain, 51, was asked at an earlier press conference in Germany’s financial capital whether he was the right man to lead Deutsche Bank’s efforts to instill cultural change, given his previous role as head of the investment bank, which has generated the bulk of the company’s litigation expenses.
“I believe in it and I’m highly aware that the tone from the top is what really matters,” he said. “There’s no doubt in the minds of any of our staff or our clients that I am suitable. I am the person that does exemplify a lot of the values which we now stand for.”
Deutsche Bank’s shares dropped 0.9 percent to 36.55 euros at 4:35 p.m. in Frankfurt. The decline over the past 12 months was 1 percent compared with a 9.7 percent gain for the Bloomberg Europe 500 Banks and Financial Services Index.
Jain and co-CEO Juergen Fitschen set aside 2.3 billion euros for legal costs at the end of December compared with 4.1 billion euros a year earlier. It’s lowering pay, firing staff and shrinking assets to lift profit and capital levels.
“It’s possible that they’ll get the lion’s share of legal issues out of the way this year,” Andrew Stimpson, an analyst at Keefe Bruyette & Woods who has a buy recommendation on the stock, said by telephone from London. “But there are still some big items, like the currency market probes, that could well stretch into 2015.”
Deutsche Bank reduced salaries and bonuses at the investment bank, which also includes sales and trading, by 14 percent to 5.34 billion euros last year from 6.24 billion euros in 2012, the company said. The compensation fell 23 percent in the fourth quarter from a year earlier.
“We are keeping an eye on the competition and the pack that we’re competing with for talent,” Jain said. “What we are doing is something the whole industry is doing at varying speeds.”
The bank hasn’t lost a “material” number of investment bankers after overhauling its compensation system, which includes staggering annual bonuses over a longer period, he said.
Deutsche Bank reported the pay cuts as it published fourth-quarter earnings that showed a net loss of 958 million euros compared with a loss of 2.53 billion euros a year earlier. The company had reported a surprise pretax loss of 1.15 billion euros 10 days ahead of schedule last week on the legal costs and accounting charges.
Revenue from investment banking and trading declined 27 percent to 2.46 billion euros in the fourth quarter from a year earlier, led by a 31 percent decline in income from debt trading, Deutsche Bank said last week. Headcount at the division, led by Colin Fan and Robert Rankin, fell 2.4 percent to 8,435 at the end of 2013 from a year earlier, the bank said.
The five biggest U.S. investment banks saw their total revenue from trading fixed income, currencies and commodities, a mainstay of their investment banking business, drop 4.2 percent to $10.2 billion, data compiled by Bloomberg Industries show.
The U.S. will probably continue to outpace Europe in debt trading for several years “so undoubtedly we do have to look at our U.S. versus European size of platform and continue to reinvest,” Jain told analysts on a conference call last week.
The bank will “keep an eye on” equities and other asset classes that rallied over the last two years, Jain said in the interview. It expects an end to “easy” monetary policy in the first half of 2015, he said.