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Leveraged loan writedowns have the potential to scupper DB bonuses yet.

Deutsche Bank pours money into bonuses. Barclays, less so

With both Deutsche Bank and Barclays disclosing their third quarter results today, it's amply clear that macro traders at both banks are flying high. It's less clear whether they will be equally enamoured of their compensation at year-end.

At Deutsche Bank, rates trading revenues more than doubled in the third quarter, "driven by increased client flows and disciplined risk management in volatile market." At Barclays, growing rates, FX and emerging markets trading revenues drove a record quarter in fixed income trading, with revenues up 93%.

However, while traders at both banks had an excellent three months, Barclays' ability to compensate people in its investment bank is being compromised by its $722m loss relating to the over-issuance of securities. Deutsche Bank is not encumbered by such troubles.

While Deutsche Bank has therefore hiked spending on compensation and benefits by €398m across the bank so far this year, and by €194m in the corporate and investment bank alone, Barclays' situation is more nuanced. Although operating costs, including compensation, rose by $578m (11%) in the first nine months of this year versus last, and although Barclays says it's 'investing in talent' along with "systems and technology," the loss has taken its toll on the bottom line. Pre-tax profits in Barclays' corporate and investment bank are down 20% year-to-date. There's no explicit mention of higher pay at the British bank, whereas Deutsche Bank is very clear that its "performance related compensation" is increasing. Average compensation at DB's investment bank is up 8% year-to-date, to €245k.

While rates traders are doing well, credit traders are not. Deutsche said today that third quarter credit trading revenues were, "significantly lower" and that this was "due to non-repeat of distressed performance and a challenging market environment." Last week, Manav Gupta, the head of investment grade and high yield credit trading at DB, left. 

Investment bankers are hurting at both banks. But Deutsche Bank's debt capital markets bankers are hurting by far the most. Deutsche Bank DCM revenues fell 99% year-on-year to just €6m in the third quarter as issuance in leveraged capital markets collapsed. The bank set aside €132m for credit losses in the third quarter, and said that further writedowns on leveraged debt are possible and that de-risking leveraged finance commitments is being complicated by market conditions. Deutsche Bank employees may not want to count on their 2022  bonuses just yet. 

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AUTHORSarah Butcher Global Editor
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