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Deutsche Bank stands by management bonus despite €5.72B FY'19 loss

Deutsche Bank AG's management board will still claim hefty bonuses despite despite massive restructuring costs pulling the bank's annual loss further down in what CEO Christian Sewing called a "year of transformation."

Although the German banking group's management board cut their variable compensation for 2019 by half, to approximately 13 million from about 26 million in 2018, the bank's attributable loss for 2019 rose to €5.72 billion from €52 million in 2018.

Speaking at a news conference following the release of the group's full-year results, Sewing defended the decision, saying the management board could have maximized its bonus payout. Instead the board decided on the cut "to play [our] part" given the bank's "radical transformation" and the number of employees it had to cut to reduce costs.

Deutsche Bank achieved or surpassed its targets for the year and a clear majority of shareholders approved the bonus system, he said.

Sewing refused to comment on the specifics of the groupwide bonus plan, particularly for ordinary employees, as the bank is still in discussions with staff, but he said the groupwide variable compensation would be lower than the prior year.

"I think we have taken the right and the good decision in this regard, which, of course, is in line with our cost discipline overall," he said.

Deutsche Bank's share price in Frankfurt was trading about 3.7% higher than the previous day's close in late-afternoon trading.

Restructuring bites

When the group unveiled its new restructuring strategy in July 2019, it said it would fund the activities under the plan without the need for additional capital. The group said then that the cumulative total cost to achieve the transformation would total €2.4 billion between 2020 and 2022.

CFO James von Moltke said the bank had already absorbed roughly 70% of the total transformation costs, or more than €5 billion, in 2019.

For 2019, its financial statements took into account a combined €3.00 billion charge related to transformation costs, goodwill impairments and restructuring and severance expenses.

Although hefty, von Moltke said the overall transformation impact incurred in 2019 was "in line with plan." Adjusted for transformations costs and specific revenue items, von Moltke said the bank's pretax profit would have amounted to €361 million.

Despite absorbing most of the total cost to achieve transformation, the bank has completed less than a quarter of the targeted 18,000 job cuts under the restructuring. Asked about this, Sewing said: "You always take the higher restructuring costs initially in order to further implement the reductions over the next 12 to 18 months."

Sewing also refused to comment on how many job cuts the bank would implement in 2020.

Thriving in the US

The bank has faced challenges in the U.S. Around the time the new strategy was announced, it was reported that Deutsche Bank planned to focus on Europe and scale down or exit some of its international operations, particularly the U.S. But according to Christiana Riley, CEO for the Americas, "that is certainly not the case."

The group's net revenues from the Americas, particularly in the U.S., has fallen for the last three years to €5.45 billion in 2018 from €5.88 billion in 2017 and €6.83 billion in 2016. Riley attributed the underperformance of the region in recent years to a lack of focus.

"We kept too many options open. We wanted to be everything for everyone," she said.

Riley said the U.S. operations are an "indispensable" part of Deutsche Bank so it has taken steps to improve the business in the region, including focusing on markets. The bank also hired more staff in the region as it seeks to expand its product offerings.

However, the bank's ties with U.S. President Donald Trump have drawn additional scrutiny. Congress in April 2019 subpoenaed the lender to hand over documents, including Trump's tax returns. In October, the bank told the 2nd U.S. Circuit Court of Appeals that it does not have Trump's tax returns.

Riley did not disclose any further details but said the bank is fully cooperating with Congress and the Supreme Court.