Deutsche Bank AG DB has decided not to reward present and former board members with cash bonuses in 2015, according to Bloomberg. Around same time last year, the company had withheld deferred bonuses of seven top managers for the year 2011.
According to people familiar with the matter, the freezing of bonuses affects every board member, apart from new Co-CEO John Cryan, new CFO Marcus Schenck and new head of retail bank, Christian Sewing. Notably, taking into account last year’s freeze, the lender has stopped payment of more than $17 million in executive bonuses.
Reportedly, Deutsche Bank is currently on the radar of German regulator BaFin for alleged manipulation of interest rates. The regulator has also pointed out senior management’s inefficiency in conducting investigation to resolve legal hassles.
Mounting legal expenses driven by several misconducts have become the largest threat to Deutsche Bank’s earnings over the past several quarters. Moreover, fresh accusations keep cropping up each passing day.
As such, the freezing of the bonuses comes as a strict measure against management’s inefficiency, which has resulted in legal fines worth $12 billion since the financial crisis.
Sighting similar inefficiencies, Deutsche replaced former Co-CEO Anshu Jain with Cryan, effective Jul 2015. Further, the company announced a new strategic plan in Apr 2015, which included cost-savings and operational restructuring for bringing growth back on track.
However, Deutsche expects heavy litigation charges to more than offset benefits from such restructuring initiatives. In this regard, the company has kept aside $1.3 billion as legal reserves as of Jun 30. Moreover, it remains wary of achieving performance targets set under Strategy 2020.
Our Take
While litigations and probes will continue to challenge the company’s profitability in the near term, Cryan looks promising as the Co-CEO and is likely to bring around a palpable turnaround in growth despite the legal mess. Besides, gradual changes in the company’s strategy will support bottom-line expansion.
Deutsche Bank currently carries a Zacks Rank #3 (Hold).
Sumitomo Mitsui Financial Group, Inc. SMFG, Royal Bank of Canada RY and Banco Santander (Brasil) S.A. BSBR are some better-ranked foreign banks. All these stocks hold a Zacks Rank #2 (Buy).
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