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Deutsche Bank (DB) Likely to Reduce Bonus Pool for 2018

Zacks Equity Research

The 2018 bonus pool of Deutsche Bank DB is less likely to impress its employees, as people familiar with the matter are indicating around 10% cut due to the troubles the bank faced during the year. The news was reported by Bloomberg.

The move is in sync with CEO Christian Sewing’s plans to cut costs. Further, management plans to distribute bonus “selectively” in order to retain talent considered to be more promising.

However, the final decision has not been made yet and the bonus figure can change depending on fourth-quarter 2018 results.

The bank had distributed about €2.2 billion in bonuses for 2017. This amount was significantly higher than €546 million paid in 2016 but slightly less than €2.4 billion paid a year earlier.

To justify this compensation plan, John Cryan, the bank’s CEO at the time, said that this is a "one-off investment" that the firm is making to retain its employees.

Last year was not a good one for Deutsche Bank as global headwinds and its involvement in a number of legal probes dragged its stock price to all-time lows.

In December 2018, antitrust regulators at the European Union accused Deutsche Bank along with Credit Agricole CRARY and Credit Suisse CS of rigging prices of U.S. dollar-denominated government bonds for a period of about seven years (2009-2015).

Further, suspicions of the German lender’s involvement in processing nearly $150 billion in potential payments at Danske Bank, which is at the heart of Europe’s one of the biggest money laundering scandals, affected its performance.

Despite various strategies to strengthen financial performance, Deutsche Bank’s profitability remains threatened by its involvement in persistent legal hassles and low rate environment in the domestic economy. Also, litigation issues related to past misconducts continue and related costs might hamper bottom-line growth.

Deutsche Bank’s shares have lost around 24% in the past six months compared with the industry’s decline of 6.9%.

The stock currently carries a Zacks Rank #4 (Sell).

A better-ranked stock in the same space is Banco De Chile BCH. The company’s Zacks Consensus Estimate for 2018 earnings has remained stable over the last seven days. In two years’ time, the company’s shares have gained 33.1%. The stock carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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