ECB squashes Deutsche Bank plans to raise bonus pool by a third

The European Central Bank has shot down Deutsche Bank’s plans to increase its bonus pool by more than a third after Germany’s largest lender reported a small profit for the first time in six years.

People familiar with discussions told the Financial Times that Deutsche had initially planned to pay out more than €2bn in bonuses for 2020 compared with €1.5bn for 2019. It backed down from this plan in the face of stiff opposition from the ECB.

The exact size of the scaled-back bonus pool is unclear and will be published by the bank on March 12 in its annual report.

The ECB and Deutsche declined to comment. Bloomberg first reported the story.

Buoyed by a global trading boom, Deutsche eked out a net profit of €113m for 2020, its first in six years. It is in the midst of a multiyear restructuring and has scrapped its dividend for the second year in a row.

Chief financial officer James von Moltke last month said Deutsche needed to “to compensate people for [last year’s strong] performance on a competitive basis”, adding that the lender was aware of the ECB guidance to “apply moderation in variable compensation”.

Deutsche’s performance last year was mainly driven by its investment bank, where performance-based pay is more important than in its retail division and its corporate bank. Investment bank revenues shot up 32 per cent as trading in bonds and other fixed-income products boomed last year during the Covid-19 pandemic.

Pre-tax profit of Deutsche’s investment bank in 2020 increased year-on-year more than sixfold to €3.2bn.

The size of the bonus pool has been a contentious issue at Deutsche Bank for years. Between 2015 and 2019, it paid out €8.6bn in variable pay while racking up €14.6bn in losses over the same period.

Shares in the bank have lost more than 60 per cent since 2015. In 2019, 583 employees earned more than €1m, compared to 643 in the year before as the bank ditched its lossmaking equities trading division and fired many well-paid investment bankers.

Andrea Enria, the eurozone’s chief banking supervisor, in December urged European banks to “continue to adopt extreme moderation with regard to variable remuneration until 30 September 2021”. He pointed out that excessive payouts could also “negatively affect the amount or quality of your institution’s total capital”.

Enria also warned lenders not to “underestimate” the reputational risk of high bonus payments and stressed that it would continue to monitor remuneration policies closely. “Stricter supervisory measures may also be issued on the basis of institution-specific analyses,” he wrote.