Deutsche Bank's wild hiring while ex-banking head is thwarted
How much is Deutsche Bank spending on M&A bankers this year? Two weeks ago, Fabrizio Campelli, the head of its corporate and investment bank, said it had brought on "close to 50 industry coverage deal makers and product experts" since January.
Since then, the hiring announcements have been coming thick and fast. Yesterday it was one of France's top FIG bankers (and Tidjane Thiam's wife), Marie-Soazic Geffroy from Perella, plus Jeff Cady and Aaron Saperstein from Citi and Chris Williams from Credit Suisse. Today, it's Robert Plowman from Citi, Siddharth Malik from BofA and William Mansfield and Rumesh Rajendram from Credit Suisse.
Given that Deutsche Bank's compensation is famously oriented towards salaries, all these new bankers won't have come cheaply. In the US, some Deutsche Bank directors are now paid salaries of up to $550k (£434k) according to data from H1B visa applications. Deutsche's managing director salaries - which historically topped $500k at Deutsche Bank on Wall Street, may have risen to maintain the differential.
Even allowing for lower salaries in Europe, Deutsche's hiring spree will have cost it tens of millions and perhaps $100m+. The German bank has a reputation for paying large guaranteed bonuses as well as large salaries in order to get people on board, and while Credit Suisse people may have come without much fuss, others are likely to have required extra inducement. One headhunter claims that Geffroy's new role was open for a while.
Can Deutsche afford all these new M&A bankers? The investment bank's cost income ratio was 66% in the first quarter of this year, so hypothetically yes. But the return on tangible equity in the business was 8.5%, which was below European banks' circa 9% cost of capital. In a year when fixed income revenues are falling, that could yet prove problematic - unless all the new hiring leads to an increase in M&A revenues to pick up the slack.
"Deutsche Bank is basically betting on an increase in M&A revenues in Q4 and 2024," reflects one senior headhunter. "They want to have a really good group of people to capitalize on that." Many of those hired now won't turn up for at least three months, although Rajendram and Mansfield are joining in July and Malik arrives this week. Just in time for the summer lull.
Alasdair Warren not getting immediately richer after all
This isn't the first time that Deutsche Bank has gone heavy on M&A bankers. In 2015, it hired Alasdair Warren from Goldman Sachs on what was purportedly a handsome multi-year package, and Warren subsequently set about hiring a lot of expensive people he'd worked with in the past, but made no difference to Deutsche's league table standing and eventually had to let people go. "There's fear and loathing, and indiscipline on costs," said one MD at the time.
Warren himself was ousted from Deutsche Bank in 2018, but as we reported last month, he stood to top up his riches from a purported £6.5bn IPO of WeSoda, a Turkish soda ash business that he's been chief executive of since 2019, this year.
That IPO is no longer ahead, and Warren has been doing the rounds of Radio 4 and elsewhere blaming cautious London investors and saying WeSoda may take its listing to New York instead.
Writing in the FT, however, Craig Coben, the former head of ECM at Bank of America, says it's not London that was the problem, but WeSoda's lack of realism: it wanted a valuation of 7-10 times forward EV/ebitda, while similar businesses are valued at around 5x. £5bn would have been more realistic.
Why was Warren so greedy bullish? It wasn't for personal gain, or at least not immediately. The FT also reported yesterday that investors were concerned because WeSoda management (AKA Warren) didn't hold any shares in the group. This would seemingly have been remedied with an LTIP post-flotation, but for the moment its Warren has been managing the attempted IPO process for his salary alone, the size of which is unclear.
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