P&M notebook: payment for results
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People and MarketsCommentP&M Notebook

P&M notebook: payment for results

The daftness of Deutsche’s distinction between "variable compensation" and "retention awards" was plain for all to see, though a good few hundred pages into the bank’s annual report. But, silly optics aside, it ought to help the bank’s recovery.

Deutsche’s compensation plan has been keenly watched by the Street. When the bank first said it would drop individual comp entirely for its VPs, directors and MDs, there were worries that this would depress the whole Street, and that the trickle of bankers out of Deutsche would become a torrent.

That hasn’t happened, exactly, in part because the firm didn’t actually cut comp that much. A couple of headhunters told GlobalCapital at the time that it was window-dressing, and, for some divisions and some staff, that looks pretty accurate. The €500m bonus pool was an 80% cut from last year — but managers have had €1.1bn of retention awards to hand out. These don’t fully vest for five years, but they’re a lot better than nothing.

But it is, perhaps, a little like “zero-base budgeting”. Branding most of the pool a “retention award” forces desk heads to justify, from the ground up, their place in the new-look Deutsche Bank, and their staff’s likelihood of leaving (or need to retain them).

It may leave certain desks in the same place (or better), but it makes for a different psychology, and it could well cut Deutsche’s future restructuring costs. The bank will want to avoid costly redundancy and restructuring payments hoping unloved staff take the hint and leave than rather the bank having to pay them out.

James Gray, the head of EMEA ABS syndicate, may see a path to better and brighter things. Though Deutsche’s enhanced capital levels ought to boost its standing in asset-backed products, Gray has left the bank, and is heading to JP Morgan, a bank whose firepower has never been in doubt.

The US bank got rid of James Crispin, its long standing ABS syndicate head, at the end of February, though Flavio Marco Rusconi remains on the desk. Alone among banks active in EMEA securitization, JP likes to have two senior bankers on ABS syndicate.

Gray hadn’t been in a syndicate job for long. He transferred from Deutsche’s ABS and credit sales team when Bilal Husain quit DB last year for BNP Paribas — a pleasingly neat round of syndicate job moves, since Husain first joined DB from… JP Morgan's ABS syndicate.

Replacing Gray at Deutsche is another transfer from sales, Gerard Hammond. The European securitization market lacks any sort of organic pipeline of pure-bred syndicate bankers, since the credit crisis cut off junior recruitment into specialist ABS roles — meaning lateral transfers from other desks are the order of the day.

GlobalCapital’s other main excitement of the last week was a deep dive into Europe’s ever-expanding bookrunner groups. A study of (admittedly flawed) Dealogic data shows syndicate sizes more than doubling in big European investment grade trades in the last five years or so — a fearful prospect for DCM heads if that means fees have been sliced correspondingly thinly.

Actually, though, that doesn’t seem to have happened — the point of the increasingly huge syndicate groups is to reward banks for lending, which doesn’t work if borrowers also nickel-and-dime the bookrunner group on fees.

And the issue of whether big bookrunner groups hurt execution is also hotly contested. Nobody thinks a large syndicate group helps, exactly — more diffusion in decision-making, less clarity on roles and responsibilities, more difficult operational arrangements all damage the success of a deal — but it’s hard to point to deals which have flopped because the syndicate has been too large.

A few casual chats on the topic at the end of January pointed up EdP’s €600m 2023, which sported a generous nine bookrunners, but this shows the difficulty of finding a ‘smoking gun’ — the book was €2.1bn and it tightened 12bp in secondary. You could argue it was a smidge generous, but there are lots of good reasons to tread carefully for a Portuguese deal 100bp through the sovereign.

In any case, full discussion is welcome here — and GlobalCapital encourages forth any more wisdom on a topic close to the hearts of issuers, syndicate and DCM.

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