Banks around the world, including Deutsche Bank, are taking a harder line on pay and are axing jobs as they come to grips with high costs and tougher rules that have made them less profitable than in the past.RALPH ORLOWSKI/Reuters
Barclays PLC and Deutsche Bank AG will take a knife to bonuses for investment bankers in the coming weeks as they seek to tackle high costs, people familiar with the matter said.
Britain's Barclays is finalizing bonuses for last year, and overall 2012 compensation for investment bankers will fall by between 10 per cent and 20 per cent on average, two sources said.
New Barclays CEO Antony Jenkins is revamping the bank and has pledged to cut pay to lift returns for investors.
Deutsche Bank's investment bankers will see bonuses for 2012 fall by 15-20 per cent, resulting in a similar cut for overall pay for the year, two sources said.
The reduction follows a year of restructuring at Germany's flagship bank and pressure from regulators to clamp down on short-term rewards that can encourage risk-taking.
Barclays and Deutsche Bank, regarded as Europe's most successful investment banks, declined to comment.
Banks around the world are taking a harder line on pay and are axing jobs as they come to grips with high costs and tougher rules that have made them less profitable than in the past.
European lenders are expected to cut more aggressively as their regulators apply more pressure.
Bonuses across the industry for 2012 could be down by as much as 30 per cent from 2011, senior bankers say.
Credit Suisse is also set to cut its bonus pool for 2012 by one-fifth, the fourth year in a row the Swiss bank has slashed payouts, a newspaper reported on Sunday.
Bank executives have put their staff on alert for lower pay for some time.
Deutsche Bank co-chief executive officer Anshu Jain, who previously headed its investment bank, said in September the payout ratio – the proportion of net revenue set aside for banker pay – would come down.
Barclays' Mr. Jenkins, who took over in August after predecessor Bob Diamond quit when the bank was fined for rigging Libor (London interbank offered rate) interest rates, aims to cut compensation in his investment bank to 39 per cent of its income for 2012, one of the sources said, down from 47 per cent in 2011.
He is also expected to cut up to 3,000 investment bank jobs as part of a restructuring to be unveiled on Feb. 12. Staff are expected to be told their pay in early February.
Mr. Jenkins told analysts in October he was "acutely aware" that investors and others wanted pay to come down, and said Barclays' compensation-to-income ratio would be in the top quartile.
"We are on a path to continue to drive this ratio down, but always with an eye to being competitive," he said.
That could see the pay of top rainmakers stay flat or increase slightly on the year while the earnings of weaker performers could slide by up to 40 per cent, one of the sources said.
U.S. rival JPMorgan last year paid out 34 per cent of its investment banking income to staff and is considered the best among major firms.
The ratio averages about 45 per cent in investment banking, although the ratios are not always comparable. It is estimated to be about 48 per cent at Deutsche Bank and more than 50 per cent at Credit Suisse and UBS.
Bonuses awarded in the coming weeks could be affected by the hefty fines and compensation bills for misselling in the past year.
Some of Barclays' bonus pool could be used to pay the bank's £290-million ($458-million) fine for Libor manipulation; Royal Bank of Scotland is also considering cutting its bonus pool to contribute to a pending Libor fine.