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It is a tricky pay disclosure season for banks. The basic problem with 2020 numbers is exemplified by Deutsche Bank. Investment bank staff will get €465,000 on average and chief executive Christian Sewing will receive €7.4m. Sections of the German economy would have collapsed last year without the state support that triggered a lucrative surge in financings and securities trading.
The optics could be even worse for Credit Suisse, due to publish its annual report next Thursday. It put $10bn of client money into funds linked to Greensill Capital, the risky supply chain finance group that has just imploded. On paper, senior Credit Suisse bankers still stand to get big bonuses.
Credit Suisse investment bank profits rose 70 per cent last year to SFr1.7bn ($1.8bn). If the pay of “material risk takers†increased by the same amount, they would, on average, take home more than SFr2m each.
The best response would be for chief executive Thomas Gottstein and chief risk officer Lara Warner — a sometime Davos speaker on responsible leadership — to waive some or all variable pay for 2020. The same should apply to executives involved in the debacle who are below board level if they are staying with the bank.
It makes no sense to penalise mid-tier Credit Suisse bankers who played no part in the affair. But banks should still exercise restraint on 2020 bonuses. From inside the bubble, it looks reasonable for Deutsche investment bank staff to be well rewarded. On average, they generated €740,000 of divisional profit each. The compensation ratio — a key metric banks have mostly stopped reporting out of embarrassment — would be relatively low at 22 per cent.
If you are outside the bubble, as angry German trades unionists are, you are more likely to attribute hefty pay to state support. German taxpayers are on the hook for an estimated €1.3tn in pandemic stimulus costs. Deutsche’s payouts would have been even higher without intervention from the European Central Bank. Banking’s social contract is constantly rewritten. Paymasters should proceed warily.
The Lex team is interested in hearing more from readers. Please tell us what you think of bank pay policies in the comments section below
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