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Deutsche Bank (DB) Likely to Slash 2019 Bonus Pool by 20%

Zacks Equity Research

The 2019 bonus pool of Deutsche Bank DB is less likely to be impressive, as people familiar with the matter are indicating around 20% cut due to the troubles faced by the bank during the year. The news was reported by Bloomberg.

The move is in sync with CEO Christian Sewing’s plans to cut costs as part of its ongoing radical restructuring. However, the final decision has not been made yet and the bonus figure can change depending on fourth-quarter 2019 results.

The bank had distributed about €1.9 billion in bonuses for 2018. This amount was lower than the €2.3 billion paid in 2017, but significantly higher than the €546 million paid a year earlier.

Representatives for Deutsche Bank refrained from commenting on the matter.

Management plans to distribute bonus accordingly to retain talent considered to be more promising with the aim of recording cost cuts of around $6 billion over the next few years. Notably, to fulfill the target, Sewing is working toward reviving the securities unit to restore profitability.

The division’s revenue recorded 11% decline in the first nine months of 2019, while pretax profit slumped 47%. However, per Sewing, “momentum” in the unit has been on an upswing and improvement in trading conditions is likely in the ongoing quarter.

Earlier last week, at its “Investor Deep Dive”, Sewing reported the progress on the bank’s transformation strategy. Sewing noted, “In the past few months we have made significant progress on every dimension of our strategic transformation. We are in line with our plan and even ahead in several areas.” Cost targets for 2019, 2020 and 2022 were maintained by the bank.

Deutsche Bank’s Common Equity Tier 1 (CET 1) capital ratio requirement has also been reduced by the European Central Bank (ECB) from 11.84% to 11.59%, effective Jan 1, 2020. This move follows the bank’s progress since the first SREP assessment in 2016 and the 2019 Supervisory Review and Evaluation Process (SREP). The decline in ratio resulted from the reduction in the ECB’s Pillar 2 requirement from 2.75% to 2.50%, effective Jan 1, 2020.

Bottom Line

Sewing is working on various strategies to fortify the bank’s financial performance post announcement of restructuring plan in July including reduction of a fifth of the workforce and exiting equities trading. Notably, the bank has implemented various steps, including selling off unwanted assets, cutting costs and lowering the key capital requirement.

Despite various strategies, Deutsche Bank’s profitability remains threatened by its involvement in persistent legal hassles and low-rate environment in the domestic economy, which is straining lending revenues, impacting investment banking businesses. Also, litigation issues related to past misconducts and legal costs might impede bottom-line growth.

Deutsche Bank currently carries a Zacks Rank #4 (Sell). Shares of the company have lost around 8.2% year to date as against 6.9% growth recorded by the industry.

Stocks to Consider

Credit Agricole SA CRARY has been witnessing upward estimate revisions for the past 60 days, with the company’s shares appreciating nearly 26.6% on the NYSE, in six months’ time. It holds a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lloyds Banking Group PLC LYG has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 20%, over the last six months. The stock carries a Zacks Rank of 2, currently.

Barclays PLC BCS has been witnessing upward estimate revisions for the past 60 days. In addition, the company’s shares have gained 29.9%, over the last six months. At present, it carries a Zacks Rank of 2.

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