Via Financial Times

Deutsche Bank is considering a cut of up to 20 per cent in its bonus pool as it looks to reduce costs by €1.3bn this year, according to people familiar with discussions at the bank.

This would be a more radical cut than last year, when the pool shrank by 14 per cent and it paid out just under €1.9bn in bonuses. 

Two people briefed on the internal discussions said that while cuts of up to 20 per cent are being discussed, the lender has not yet reached a final decision. Deutsche Bank declined to comment. 

Deutsche suspended its 2019 and 2020 dividend in July and will have to bear about €5.4bn of restructuring costs this year. It is part way through its most radical restructuring in decades — it is pulling out of equities trading, has earmarked a fifth of the assets on its balance sheet for disposal and wants to axe 18,000 jobs by 2022. 

Chief executive Christian Sewing told investors at the bank’s capital markets day on Tuesday that the bank is “on track to meet both our 2019 and 2020 cost targets”. 

So far this year, Deutsche has cut staff numbers by about 2,000, or two per cent. However, Ram Nayak, head of sales and trading, told investors on Tuesday that the lender has already reduced its front office headcount in the investment bank by just under 20 per cent.

Another person familiar with Deutsche’s discussions pointed out that the proposed bonus pool cut was in line with the reduction in front office staff. 

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Finding the right balance between cuts and maintaining staff morale will be a challenging task for Mr Sewing.

On Tuesday, he told investors that the operating performance of the investment bank improved significantly during October and November. “In sales and trading, we’ve experienced healthy double-digit growth in these two months,” he said.

Deutsche has toughened the targets for its investment bank for the coming three years. The previous goal was flat revenues and a 6 per cent return on tangible equity by 2022. It is now aiming for an average 2 per cent revenue growth between 2018 and 2022 and between 7 and 8 per cent return on tangible equity.

During the first nine months of the year, investment banking revenue fell 11 per cent while costs fell by 4 per cent. It generated a return on equity of just 1.8 per cent over that period and spent 88 cents of every euro in revenue. 

Bloomberg first reported Deutsche Bank’s discussions about cutting its bonus pool.