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Deutsche Bank Slashes 2016 Bonus Pool by Almost 80%

Zacks Equity Research

Owing to higher legal charges and losses incurred over the last two years, Deutsche Bank AG DB is slashing its bonus pool for 2016 by almost 80%.  This was acknowledged by Mr. Karl Von Rohr, the company’s Chief Administrative Officer in an interview with Frankfurter Allgemeine Sonntagszeitung.

Also, the board unanimously decided to cede bonuses for themselves. Further, the employees with posts of vice-president, director and managing director will not be eligible for individual bonuses.

Nonetheless, they will still receive the group-wide bonus linked to the overall performance of the bank. About 5000 employees working in key positions will be entitled to a long-term incentive. The incentive would be linked to the bank’s performance and would be payable after six years.

This is not the first time that Deutsche Bank has cut its bonus pool. The budget for bonuses had been reduced to almost $3 billion in 2015 from about $5.3 billion in 2010.

The decision was made keeping in mind that no dividends were paid to the shareholders in the last two years. Also, Deutsche Bank’s financials are impacted adversely by a horde of legal costs and restructuring charges.

Apart from this, the prevailing low interest rate in Europe has affected the bank’s profitability. Also, the U.K’s decision to exit the European Union has largely impacted the companies operating in the area.

Deutsche Bank is not the only one that slashed its bonus pool. The Royal Bank of Scotland Group plc RBS reduced its bonus pool by 8% for 2016. Also, Barclays PLC BCS cut the bonus pool for its investment bankers consecutively for the third year. Also, its front office employees faced a 1% cut in incentives.

Our Viewpoint

While Deutsche Bank’s strategic initiatives are likely to aid in the overall growth in the long run, the slow growth being witnessed in the European economy continues to hurt its financials. Also, with the elections to be held in Germany later in this year, we might see some more changes in the pay scale.

Therefore, given these growth concerns, Deutsche Bank’s stock increased 11.3% over the last one year underperforming the 35.6% gain for the Zacks categorized Banks – Foreign industry.

Deutsche Bank currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Another finance stock carrying the same Zacks Rank is FB Financial Corp. FBK. The company witnessed an upward earnings estimate revision of 2.3% for the current year in the past 30 days. Also, its share price is up 55.3%, over the last one year.

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