Deutsche Bank is to axe bonuses for senior staff as part of its desperate efforts to pay for a potential $14bn (£11.2bn) legal settlement with American regulators.
John Cryan, the German bank’s Yorkshire-born boss, warned top bankers this month that their bonuses would be seized to help foot the bill for the mis-selling of sub-prime mortgages.
A handful of top-performing executives will receive “retention cheques” — much smaller sums that will be paid out over several years. Junior staff will still receive a bonus, but on a far smaller scale.
“The fine could be partly paid for by bonuses,” said one senior insider.
Deutsche has long been one of the largest employers in the City. It has a total UK staff of about 9,000, with some based in Birmingham.
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Cryan, 56, is locked in negotiations with the US Department of Justice over a legal settlement into claims that it mis-sold mortgage-backed securities containing home loans that were made to low- income families.
A deal is expected to be reached within the next few weeks, before the inauguration of Donald Trump on January 20.
Cryan has been looking at ways of cutting costs and boosting capital to avert an emergency share issue. The bank has set aside just $5.5bn for the US mortgage scandal, leaving a gaping $8.5bn hole in its reserves for the expected penalty.
Cryan, who served as finance director at UBS during the financial crisis, is notoriously critical of the bonus culture in investment banking.
“I’ve never been able to understand the way additional excess riches drive people to behave differently,” he said last year.
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He scrapped most bonuses at UBS in 2012 when the bank was undergoing a similarly painful restructuring. Only a “select few” senior bankers thought to be at risk of defecting to rivals received payments.
A deal with the US authorities would be an important milestone. Cryan has made it a priority to settle the bank’s many legal disputes.
On Friday, Deutsche agreed to pay $37m to settle investigations by US authorities over its involvement in “dark pool” trading. The German lender admitted it misled investors and violated securities laws about how it directed orders to anonymous trading platforms known as dark pools.
The mortgage scandal is expected to be a much more costly problem. Deutsche Bank and other global lenders such as Barclays, Royal Bank of Scotland and Goldman Sachs packaged home loans to shaky borrowers into new financial products, which were sold to investors around the world. When property prices in the US fell, the securities collapsed in value, with the losses providing the trigger for the financial crisis.
Leaked reports have suggested the bank could have to pay as much as $14bn — more than three times higher than analysts originally expected. Cryan has insisted that the final figure will be much lower, and that this is central to his negotiations. Deutsche Bank declined to comment.