Following today's exceptional results at Deutsche Bank, we're not the only ones to have spotted that the bank seems rather reliant on its fixed income traders (and its credit traders in particular). There were plenty of questions to this effect during today's investor call.
Throughout, Deutsche kept referring back to a presentation by Ram Nayak, its global head of fixed income, at last year's investor day. In particular, it cited the "waterfall chart" below.
The chart shows how Deutsche Bank plans to grow and stabilize its fixed income trading business between 2020 and 2022. Last year, fixed income trading revenues at DB were €7.1bn ($8.6bn). By 2022, Deutsche is expecting them to be smaller - at €6.7bn.
There will be a "certain normalization" of revenues in Deutsche Bank's fixed income business in future, said CEO Christian Sewing today. However, he noted that the first quarter of 2021 saw a "very strong recovery in credit - even stronger than anticipated," suggesting that the credit section of the chart below may need to be updated.
In a separate post on LinkedIn, James Davies - Deutsche Bank's head of the investment bank for the Americas, said "strategic hires" made in fixed income trading in the U.S. are starting to make a real difference. Last year Deutsche hired people like Mark DeSplinter from Citi as head of US index and single-name credit default swap (CDS) trading, and Chris Leonard from Barclays as head of U.S. rates sales and trading.
While Deutsche's traders seem to be doing a good job of growing its business, there's little sign yet that they will be paid accordingly. Spending on compensation in Deutsche's investment bank fell 1% year-on-year in the first quarter, despite a 134% increase in profits. Compensation spending in the asset management business rose 25% over the same period even though profits increased by only 66%.
There could be repercussions if generous rewards aren't forthcoming for 2021. Sewing said that much of Deutsche Bank's recent success is down to the "momentum" created by "people's motivation." - 2020's generous bonuses will also have helped.
Deutsche's bank for growing and stabilizing its fixed income trading business
Photo by Jeremy Bishop on Unsplash
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