Deutsche Bank told some employees on Wednesday that job cuts will continue even after Germany’s largest lender slashed bonuses for senior staff, according to a person with knowledge of the discussions.
In some parts of the investment bank, managers have been asked to identify the bottom 20 percent of performers in preparation for possible cuts, said another person, who like the first asked not to be identified because the information is private. The global markets business is making front-office cuts this week and next, according to a third person, who was informed of the reductions on Wednesday.
The bank’s current business plan includes eliminating about 9,000 jobs globally from 2015 through 2018, a 9 percent reduction across the firm. Deutsche Bank Chief Executive Officer John Cryan, who has also suspended dividends and sold risky assets to shore up capital, said in October he will be “more ambitious in headcount reduction.”
In a memo on Wednesday, the bank said it scrapped the bonuses of its top executives for a second straight year and slashed variable compensation for other senior employees. The announcement came a day after Deutsche Bank finalized a $7.2 billion settlement in the U.S. over its role in selling mortgage securities that contributed to the financial crisis.
“Now that we have a clearer idea of the financial impact of the settlement with the U.S. Department of Justice and our performance for the year, we feel that tough measures are unavoidable,” the bank said in the memo announcing the bonus cuts. “This is especially true at a time when thousands of jobs are being cut and our shareholders are not receiving an annual dividend.”
A spokesman for the bank declined to comment on specific job reductions.
The compensation measures will affect about a quarter of employees, including vice presidents, directors and managing directors, who will not receive an individual bonus. A “limited number” of employees in crucial positions will receive a special long-term incentive, partly in stock, that will be deferred for as long as six years, according to the memo.
The widespread compensation cuts, unprecedented in the bank’s recent history, highlight the severity of its troubles, and come as fixed-income traders around the world are about to see their annual pay grow for the first time since 2012 amid a surge in bond trading, according to a November report from recruitment firm Options Group Inc.
Last year, the lender reduced bonuses by 17 percent, saying “a more significant reduction would have jeopardized the implementation” of its strategy and “compromised the bank’s ability to attract and retain talent.”
“Employees interested in the long-term development of Deutsche Bank will understand the bonus cut and stay,” said Alexander von Preen, a consultant with executive search company Kienbaum. “But some of those taking a more short-term view on their career may be tempted to look around for new opportunities.”
Top executives at Wall Street banks including Goldman Sachs Group and UBS Group agreed to forgo their bonuses immediately after the financial crisis. Deutsche Bank’s then-CEO Josef Ackermann also waived his bonus at the time, along with other members of the bank’s management and supervisory boards.
“Other companies have taken similar steps in the past and have come back stronger than before,” Frankfurt-based Deutsche Bank said in the memo. “We are convinced that we will, too.”
The bank said it plans to return to its regular compensation program for 2017.
For 2016, senior employees will still receive a group variable compensation component, according to the memo. About 75 percent of employees will not be affected by the bonus decision, or only to a small extent, the bank said. Most junior Deutsche Bank employees have already been shifted into fixed salaries, so the decision to scrap bonuses won’t affect them, a person familiar with the matter has said.
Last year, Deutsche Bank awarded 2.4 billion euros ($2.6 billion) of bonuses for 2015, 1.45 billion euros of which was for the combined investment banking and trading unit, according to the bank’s annual report. Of the 2.4 billion euros, 49 percent was deferred stock and cash while the remainder was paid out immediately.