@DeutscheBank: Predicting the Pace of Shrinkage

If today’s announcement by Deutsche Bank CEO, John Cryan, is to be believed, total group headcount is set to be reduced by 9,000 souls. Note that these reductions will come from a year-end 2016 flock of 99,744 (which, by the way, is still within 2.3% of the all-time high of 102,062 set at year-end 2010).

We decided to look into our DB model to take a quick read of the expected pace of these reductions. Here’s the setup: Over the 40 quarters from Q1-2007 through Q4-2016, 21 of those quarters represented total headcount reductions. Furthermore:

  • The maximum headcount reduction in a down quarter was -2,256 FTEs (full-time equivalents);
  • The average headcount change over the 40 quarters (not counting an acquisition in Q4-2010) was 880 FTEs; and,
  • The average of the 21 quarters with headcount reductions was -668 FTEs

Separate from an outright sale of a business segment (which is being contemplated here in the form of its DB Asset Management arm), organic shrinkage is painful and can take more time than originally anticipated. At the maximum historically-defined pace of 2,256 FTEs per quarter, DB could actually shrink by 9,000 FTEs by year-end 2017. However, we don’t believe it is realistic to expect that they could maintain such an unprecedented pace for 4 consecutive quarters without significant disruption and human capital contagion to the ongoing business segments.

Using our other averages, 880 (over all 40 quarters in the sample) and 668 (over 21 reduction quarters), the pace of completion of this plan would then fall between Q3-2019 and Q3-2020, or 3-4 years from now (see Figure 1 below).

Optically, politically, financially – you name it – this latter timing seems too slow. Based on this, we believe that a new, middle-ground pace of reduction will need to be established (~1,250-1,500 FTEs/quarter) or the probability of DB needing to sever one of its limbs has gone up…



By | 2018-02-28T16:33:55-05:00 February 3rd, 2017|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.