The stock of Deutsche Bank Aktiengesellschaft (NYSE: DB) fell yesterday by about 2.10% to $19.10, following the reports of an annual bonus hike to its employees. The German weekly news edition Frankfurter Allgemeine Sonntagszeitung, which broke the news on Saturday, also revealed that the annual bonus pool is raised to €1bn ($1.2bn) in 2017, from around €500 million ($621.3 million) in the previous fiscal year. Following the news, the bank is facing mounting criticism from investors who are already concerned about the poor performance of the bank in the first nine months of 2017.
Earlier in October, Reuters had reported that Deutsche bank would pay higher bonuses in 2017 and try to keep pace with the Wall Street firms. Deutsche Bank is worried that another year of lower bonuses would see talented investment bankers defect to its competitors.
The intended bonus of €1 billion for 2017 is still a far cry from the €2.4 billion bonus offered in 2015. In 2014, the bank offered a bonus of €2.7 billion. Deutsche bank slashed the bonus after getting slapped with a multi-billion dollar fine for the sale of toxic debt. The bonus hike would certainly make rating agencies to have another closer look at the financial condition of the bank.
Earlier this month, Deutsche Bank had warned that weak trading, low trading volume, and a €1.5 billion charge due to the US tax reform would result in a small loss in fiscal 2017. Ingo Speich, a fund manager at Union Investment told Frankfurter Allgemeine that the financial market is losing its patience and the bank must strive to send positive signals in 2018. Speich further stated, “There is no proof so far that Deutsche Bank’s strategy will ever lead to success.”
The bank announced a massive restructuring program in March last year. That resulted in the integration of its Postbank retail bank with the in-house consumer bank. The bank also sold a portion of its asset management business.
Justifying the bonus hike, Deutsche’s corporate spokesperson Joerg Eigendorf said to CNBC that the results “don’t look good”, but the bank is in a healthy position. Eigendorf further stated, “As we were on track for a net profit (in 2017) we decided that we shouldn’t punish our staff for a tax reform that has taken place in the United States.”
However, shareholders are extremely upset that the bank is yet to generate the promised returns. In fact, the bonus raise has turned into a political issue in Germany, with the leader of the Social Democratic Party, Martin Schulz, saying the generous bonus “hurt the solidarity” of the community. Even the government spokesman Steffen Seibert said “the company management must of course ask what impression it leaves in public.” Investor concerns are expected to reflect on the share price in the days ahead.
Technically, the stock is facing resistance at the psychological level of 20. The stochastic RSI indicator is declining and the on-balance volume is making a negative divergence with the price. Thus, we anticipate a downtrend in the stock of Deutsche bank.
To benefit from the current decline, we are planning to acquire a put option. The option contract offered by a binary broker should have an expiry period of one week. Additionally, the stock of Deutsche bank should be trading near $20 on the NYSE.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
