Deutsche Bank (DB) said Friday it awarded nearly $3 billion in employee bonuses last year, despite a 23% fall in the lender's stock price and the third consecutive net loss, risking the ire of investors who have been waiting for CEO John Cryan's turnaround plans to bear fruit.
The 2017 bonus payout of €2.3 billion ($2.83 billion) tops the €546 billion payout from the previous year and comes after a $9 billion capital injection last March and consistent speculation that Cryan's tenure at the helm of Germany's biggest bank could be under threat from unhappy investors.
"I recognize that this decision was highly contentious for many given the reported net loss in 2017," Cryan said in a letter to shareholders. "If we want to live up to our claim of being the leading European bank with a global network, we have to invest in our employees so that we can continue to provide the best solutions for our clients. In the interests of the bank we could not repeat our previous decision not to pay any individual variable compensation to most of our senior staff for 2016."
Deutsche Bank shares were marked 0.33% higher by mid-day in Frankfurt and changing hands at €12.81 each, a move that trims its year-to-date decline to 19.28% compared to a 2.7% fall for the Stoxx Europe 600 benchmark and a 3.9% slide for the DAX performance index.
TheStreet's Bradley Keoun wrote last month that Deutsche Bank's plan to fire 250 to 500 employees in its trading and investment-banking division just weeks before annual bonuses get paid out resembles a strategy honed for years at Goldman Sachs (GS) : "Fire underperforming employees, or those who aren't generating enough profits to justify keeping them, to save money that can be used to pay top performers bigger bonuses."
"The move comes less than a year after Cryan appointed Marcus Schenck, a former Goldman Sachs executive, to co-head Deutsche Bank's trading, investment-banking and corporate-lending operations,"Keoun wrote. "Earlier this month, Cryan said cost-cutting was a "critical component of improved and sustained profitability," after saying last year that the bank was 'investing in people'."
"They're trying to get bankers who can make more rain," said David Hendler, an analyst at Viola Risk Advisors who follows Deutsche Bank. "So they're culling out the bankers that are just taking up space and not bringing in revenue growth."
Earlier this year, Deutsche Bank posted a full year loss of €497 million for 2017, a figure that was notably steeper than the €290 million tally anticipated by analysts and its third consecutive year in the red. Overall revenue fell 19% in the final three months of the year to €5.7 billion, well shy of the €6.2 billion forecast, thanks to a 29% plunge in trading revenues at its bond trading unit. The bank also said the reduction of the U.S. corporate tax rate to 21% from 35% would force the revaluation of some of the tax credits that sit on its balance sheet and reduce its core capital base about around 10 basis points.
"Only a charge related to US tax reform at the end of the year meant that we had to post a full-year after-tax loss," Cryan said at the time. "We believe we are firmly on the path to producing growth and higher returns with sustained discipline on costs and risks. We have made progress, but we are not yet satisfied with our results."
Deutsche Bank confirmed late last month that it will list a portion of its asset management division in a move that could raise as much as $2.5 billion for the struggling European lender.