Deutsche Bank: injury time
Christian Sewing’s task is to atone for the own goal of a 93 per cent cost-income ratio
In their flightier moments, investment bankers believe they should be paid like footballers. To stay in the top division, the owner must shower the team with money, they suggest.
On that measure, Deutsche Bank’s move to slash its bankers’ bonuses, reported by the Financial Times, is further evidence of the woes of Germany’s largest lender. Disgruntled, impoverished investment bankers set up Deutsche to crash down the league tables faster than Sunderland AFC. Deutsche should be judged on different criteria. Chief executive Christian Sewing’s task is to atone for the own goal of a 93 per cent cost-income ratio.
Across the Swiss border, UBS and Credit Suisse have “right-sized” their investment banks to focus on expanding global wealth management markets. Deutsche does not have that option, although an eventual merger with Commerzbank could create a sustainable industrial bank serving Europe’s largest economy.
Cost cutting is part of that rethink. Deutsche does not disclose targets for the investment bank. So far there has been scant progress trimming the pay bill. In the first nine months of 2018, compensation and benefits paid were flat compared with a year earlier — despite a 3 per cent fall in staff numbers. That picture was probably distorted by an uneven distribution of payments over the full year — and lower staff numbers take time to feed through into lower costs.
But Deutsche’s task is bigger: it must cut costs without revenues falling even faster. This has not been the investment bank’s forte. In the nine months to September, costs rose 1 per cent, while revenues dropped 9 per cent — and pre-tax profits by 54 per cent.
Shares in Deutsche are down almost 50 per cent over the past year, badly underperforming European rivals. If there is gloom in the bankers’ locker room, it merely echoes the mood in the corporate box occupied by investors. The market will cut Deutsche’s investment bank down to size, even if Mr Sewing does not.