Deutsche Bank AG CEO John Cryan, said Feb. 2 he couldn't promise investors a full dividend for 2017, as the bank's share price plunged over 6% on news of its third consecutive year of losses.
"I would say though that we never promised much more than what we would call a nominal dividend [for 2017]," Cryan said during a presentation of the group's preliminary full-year results. "However, for this year ... we said the dividend will be competitive ... So, rather than a nominal dividend to keep the motor going, it's meant to be a proportion of earnings per share. Of course, you need to make earnings per share before you share that in the form of a dividend," Cryan noted.
At the same time, however, Cryan defended the bank's plans to pay performance bonuses to its staff and executive board.
Deutsche Bank booked a full-year net loss of €497 million after it was hit with a €1.4 billion one-off charge related to the new U.S. Tax Cuts and Jobs Act in the fourth quarter. The bank's share price dropped by more than 6% in morning trading, reaching an intraday low of €13.73 compared to the prior-day close of €14.77, as the market reacted to the news.
Tax charge masks real progress
"Our operating profitability did improve year over year and had it not been for the year end write-down ... we'd be reporting a net income today of just under €1 billion. While this would not have represented an attractive return on the bank's capital, it would have shown that 2017 was another year of progress," Cryan said.
The bank is concerned about the share price deterioration but this cannot be repaired until it completes its restructuring plan, he said. "We do care about the share price, it is our intent obviously longer-term to improve it but [once] we improve the business and the share price should follow."
Cryan, who came under pressure in the second half of last year over the slow progress in Deutsche Bank's restructuring and unsatisfactory results, is betting on an increase in market volatility and higher rates during 2018 to pull up the revenues of its struggling investment bank arm which is the main drag on the business.
Deutsche Bank ranked sixth in the league table of global investment banks in the first half of 2017 and around 60% of its revenues come from its corporate and investment banking unit. Higher funding costs, low volumes and volatility resulted in a 15% year-over-year revenue decline in the CIB unit, to €14.2 billion in 2017.
"If you compare us with some of our big American competitors we have a relative weakness," Cryan said. "We don't have that enormous bedrock of earnings that helps us absorb the volatility coming from other businesses, particularly in the trading area. So it will be very good for us to build out those businesses which provide us with a more predictable and sustainable source of revenue, profit and capital creation. Medium-to long term that is where I think we should add more resources."
Cryan was said to have angered some of Deutsche Bank's largest shareholders who were unhappy with the share price decline and the slow improvement in performance last year.
Bonuses "a long-term investment"
The bank has also faced public criticism in Germany over plans to pay a reported €1 billion in bonuses to staff and executives.
"We promised our staff that we will invest in our existing people. They stuck with us through some difficult times and they all will be awarded equity shares in our company," he said. The bonuses are necessary as a long-term investment to retain key employees, the CEO explained.
He also defended potential bonuses for the management board. "We have not as a board this year felt it necessary to call the supervisory board and say, as we did in the previous two years, 'If you think about awarding variable compensation don't bother'," Cryan said. "We have to make management board accession an aspirational target for the people in the bank. So, I'd be supportive of my colleagues and the whole board receiving ... compensation this year."
Cryan noted that the bank's total wage bill was around €12 billion but neither he nor CFO James von Moltke provided an exact amount for planned bonus payments to staff or potential variable compensation for the board. They said the final compensation figure will be available in the final annual report to be released in March.
"I'll ask you to wait for that final disclosure," Von Molke said. "But to give you some sense of the line in our financial statements that captures this, it's less than 20% of the total compensation and benefits that we report ... The amount of swing that it represented on a year-on-year basis, which was a €750 million from what was a severely restricted year, as you know," he added.
Article amended at 5:25 p.m. London time on Feb. 2, 2018, to correct reference to the number of consecutive years of losses reported by Deutsche Bank.
