Employees Won’t Be Happy
As Deutsche Bank AG (NYSE:DB) recovers from a historically bad round of media attention, it is thinking about how to pay employee bonuses without affecting the firm’s cash supply.
Employees may receive shares in the non-core unit of the bank instead of cash payouts, or else they could receive regular Deutsche Bank stock, sources said to Bloomberg. Analysts think that bankers may not like the deal, but it would tie their fate to that of the company. (Source: “Deutsche Bank Said to Weigh Alternatives to Cash Bonuses,” Bloomberg, October 26, 2016.)
CEO John Cryan has been looking to boost the firm’s capital buffers ever since investors learned that the U.S. Department of Justice wanted to charge Deutsche Bank $14.0 billion in fines related to mortgage fraud. The share price took a pummeling in the aftermath of that story.
The bad press continued as closer examination of Deutsche Bank’s derivatives showed that its exposure stretched into the tens of trillions of dollars. Moreover, the bank was highly interconnected, having forged relationships with every major financial institution in the world.
As a result of these stories, the German lender needs to beef up its safety net of tier 1 capital.
Not only will the increased padding help reassure worried investors, but it could also allay concerns of regulators in both Europe and North America.
Deutsche Bank is also selling off some of its parts piecemeal in order to fill their coffers, including a $1.2-billion sale of insurance provider Abbey Life Assurance Company Limited. Investors did not bat an eye at the deal when it was announced, probably because Deutsche Bank had to write down $895.0 million on Abbey Life. (Source: “Deutsche Bank to Take €800 Million Hit on Abbey Life Sale,” Bloomberg, September 28, 2016.)
But whether or not it had taken a loss on the insurance provider, Deutsche Bank still proved it could raise cash if need be. Over the ensuing weeks, investors took comfort in the bank’s ability to raise money and returned its share price to pre-crisis levels.
That being said, Deutsche Bank is still in a precarious position. John Cryan is unlikely to risk upsetting that balance for the sake of one year’s bonuses, particularly when stock-based compensation would make those employees feel more invested in the firm.
The supervisory committee on compensation is expected to meet November 2 to discuss the matter, although the decision may not be made until later.