Deutsche Bank's fourth quarter results are out. As widely flagged, the bank posted its fourth full year loss in five years, with the 2019 loss reaching €5.3bn for the full year, down from a profit of €341m twelve months earlier. In the investment bank, however, there are bright spots - and darker ones.
As the chart below shows (hover over for the figures), Deutsche Bank's presumption that it can continue to run a healthy equity capital markets business without an equities sales and trading operation looks a bit hopeful on the basis of last year's figures: ECM revenues fell 33% - far more than elsewhere in the market.
Deutsche's historically problematic M&A business also proved troublesome still. Last year's exits of M&A MDs probably didn't help.
However, in fixed income sales and trading the full year decline was smaller and - at least - on a par with UBS, the only other European bank to have reported so far. Moreover, there were distinctly positive undertones to the commentary surrounding the performance here. - Rates revenues 'nearly doubled' both year-on-year and quarter-on-quarter in Q4 after existing traders were jettisoned and new ones brought in. Similarly, the credit trading business achieved "strong growth", with the flow and distressed businesses receiving particular plaudits.
This doesn't necessarily mean, of course, that people on Deutsche's rates or credit desks will benefit from higher bonuses. - Profits at the investment bank fell 50% last year, to €433m and that's never a good omen for pay. Moreover, there are (as often seems to be the case at Deutsche) a few more front office to be compensated this year than last: while back office headcount in Deutsche's investment bank fell by 984 people in 2019, front office headcount in fact rose by 135 people as Deutsche strengthened key areas (eg rates). Deutsche hasn't divulged the actual size of its bonus pool yet - that will come when it releases its annual report in March - but compensation per head in the investment bank was €126k last year, down from €130k in 2018. A decline of just 3%.
Today's results suggest the real pain at Deutsche isn't actually in the investment bank - it's in the capital release unit (CRU), which contains the people running down the books of the businesses Deutsche doesn't want any more. Revenues in the CRU were negative in the fourth quarter because of what Deutsche describes as, 'mark-to-market impacts as well as hedging and de-risking cost.' JPMorgan analyst Kian Abouhossein already flagged this as a risk for Deutsche in future.
Moreover, it's in the CRU that the really big job cuts have happened. Front office headcount there more than halved in 2019, ending the year at 1,204 people. And pay in the CRU is particularly miserable at €75k per head, 8% less than in 2018. This might be because the CRU has a comparatively higher proportion of middle and back office staff than the investment bank, but it's likely also because these are the bits of the bank that have fallen from favour. Selling down Deutsche's toxic assets seems a bit of a thankless task.
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