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Deutsche Bank Might Reduce Bonus if Revenues Fail to Grow

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Per an article by Bloomberg, Deutsche Bank (DB - Free Report) might cut bonuses for 2018 in order to achieve its cost cutting targets. Per Chief Financial Officer James von Moltke, the move might be made is the German bank’s top line does not increase.

In a conference call with fixed income investors, Moltke remarked that variable compensation is one of the areas on which the bank can focus to meet its profitability target.

Deutsche Bank is expected to distribute about €2 billion ($2.3 billion) in bonuses for 2018 compared with €2.2 billion in 2017, as told by people familiar with the matter in January 2019.

Declining revenues remain a key concern for the bank. Its top line tanked 4% year over year in 2018 on account of challenging financial markets, along with the news of raid by state prosecutors on its premises in November 2018.

However, the bank expects to see growth in 2019 if markets are relatively benign.

Other than that, it sees scope in following areas for revenue growth. In Corporate & Investment Bank, it plans to grow revenues in Global Transaction Banking and FX platforms. In that regard, Deutsche Bank is making targeted investments, including hiring in core fixed income and debt origination businesses.

Further, the bank believes that it can divide its liquidity reserves equally between cash and securities — a move that can add more than €300 million to annualized revenues.

Apart from these, Deutsche Bank seeks to continue achieving additional savings in case the revenue environment does not develop per expectations.

Despite various strategies to strengthen financial performance, Deutsche Bank’s profitability is threatened by its involvement in persistent legal hassles and low rate environment in the domestic economy. Also, litigation issues related to past misconducts continue, and related costs might hamper bottom-line growth.

In six months’ time, the stock has lost 28.5% on the NYSE compared with 3.4% decline recorded by the industry.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Banco Bradesco SA (BBD - Free Report) has witnessed 8.3% upward estimate revisions in the past 30 days. Also, the company’s shares have gained nearly 40% on the NYSE in the past two years. It sports a Zacks Rank of 1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Itau Unibanco Holding S.A. (ITUB - Free Report) has been revised 1.4% upward over the past 30 days. Additionally, the stock has jumped around 15.4% on the NYSE over the past two years. The stock flaunts a Zacks Rank of 1, currently.

Royal Bank of Canada (RY - Free Report) has been witnessing slight upward estimate revisions over the past 30 days. Further, the company’s shares have gained nearly 6% on the NYSE in the past two years. Currently, it carries a Zacks Rank of 1.

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