Deutsche Bank keeps hiring senior bankers. That might be a problem for bonuses
If you work in investment banking for Deutsche Bank you can probably feel pretty fine about things this year. M&A revenues at DB were up 58% year-on-year in the first nine months of 2023, which was more than double the increase of 22% at Citi, its closest rival in terms of growth. Across equity capital markets, debt capital markets and M&A combined, Deutsche revenues were also up 58% over the period, versus an average of around 30% at most rivals.
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While Deutsche's performance is undeniably impressive, however, it is not without its issues. Deutsche's increase in revenues comes after an increase in bankers, such that its revenues per full-time front office employee in banking have become unusually low, according to market intelligence firm Tricumen.
The chart below shows average operating revenues per full-time banking employee (the dotted line) and deviations therefrom. Outside the dotted line is good. Inside the dotted line is bad. By Tricumen's reckoning, Deutsche Bank is therefore very bad, but not as bad as SocGen which is the worst. Banking is defined as M&A, ECM and DCM.
Operating revenues per full-time employee, 9m 2024
Source: Tricumen
Deutsche Bank declined to comment on Tricumen's estimates. They follow a hiring spree at the German bank, which saw the addition of Numis and its employees last year and the accumulation of more than 100 investment bankers in total in the 18 months to June '24.
Nowadays, the German bank is now hiring more selectively. Latterly, Deutsche has seemed focused on America, where it slipped from 13th to 22nd in the M&A league table between 2020 and 2022 according to Dealogic and has now clawed its way back to 16th. It recently recruited both Aly Alibhai from UBS as head of North American M&A, almost certainly on guaranteed bonus, and its own ex-banker Randy Russell from a spate of self-employment, as co-head of media and telecoms banking, probably not on a guarantee.
Even so, the implication of Tricumen's chart is that the increase in Deutsche Bank revenues hasn't kept pace with the increase in Deutsche Bank bankers. This is perhaps to be expected: it takes a while for individuals to ramp up. Barclays, for example, also hired a lot of new bankers last year and has said that, "it can take 12 to 18 months for somebody to become truly productive."
Nonetheless, the discrepancy might make for some difficult conversations at bonus time, particularly with long-serving Deutsche Bank staff, who've potentially had their bonus pools diluted and can see newer hires on guarantees.
None of this is likely to discourage Deutsche. It's understood that the German bank began its banker hiring spree on the back foot, with 40% fewer VPs and managing directors than other bulge bracket banks. It's merely right-sized headcount to match its ambitions. Now that new headcount just needs to right-size revenues and bonuses will follow - but maybe not until 2026.
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