BLOG

We had been wondering for the past few months why SocGen, which last year was one of the most bullish banks, turned surprisingly sour on the S&P in late 2017 and early 2018 (here and here and any Albert Edwards note of course). We now may know the answer: Societe Generale has cut bonuses for its traders by as much as 25%.

According to Bloomberg, "the reduction in the bonus pool was communicated to the employees in recent weeks" which certainly did not boost morale, or the optimism of the bank's strategists who earlier this week released a note titled simply "Bulls Beware" .

The sharp reduction in comp is not surprising: it comes amid a poor performance at the Paris-based lender’s trading activities, with revenue from fixed income, currencies and commodities falling about 7% to €515 million euros in Q4. And just like all of its peers from Goldman to Morgan Stanley, the bank cited “historically low volatility” and the reduced client activity as a reason for the underperformance.

What is odd, perhaps is that not more banks have done the same as SocGen which will now certainly suffer an exodus of its most profitable traders, who will get poached by Socgen's better paying peers.

The bonus cuts also come after CEO Frederic Oudea warned comp would “follow the performance” of the trading activities, which while bad was hardly terrible.

SocGen is also battling overhangs from long-running regulatory probes; it is currently in talks to settle a US investigation into the alleged manipulation of the Libor interest rate, as well as a probe into accusations of bribery in Libya. Earlier this week, Deputy CEO Didier Valet left the company after a disagreement over a case that sees the bank accused of manipulating Libor, Bloomberg also reported.

* * * 

Meanwhile, as SocGen is slashing bonuses to punish its traders for being unable to navigate centrally planned markets in which nothing makes sense, Deutsche Bank - whose earnings were "abysmal" with a 29% plunge in Q4 FICC trading revenue - is rewarding them, and today announced it would boost 2017 bonuses four-fold to €2.2 despite posting its third annual loss in a row.

The increase in rising pay was disclosed in Deutsche’s 2017 annual report which was published on Friday morning, and reflects the lender's decision to return to its “normal system of variable compensation” in 2017, after an 80% cut in bonuses to €500m in 2016, which also was expected considering Deutsche Bank's stock hit record lows that year, sinking below the depths of the financial crisis.

The bank also announced that less than half of the 2017 bonuses will be deferred to future years.

Which is good news for those Deutsche Bank employees who were not fired: last month the bank announced the layoff of another 500 in its corporate and investment bank units. The German lender has also suffered a sharp drop in graduate hires, which fell by a quarter to just 619 people in 2017. The overall number of employees fell by 2.2% of 97,535.

Furthermore, not everyone will share in the bonanza: CEO John Cryan and the other members of the management board waived their variable pay. Still, total comp for the 12 most senior top executives at Deutsche still rose 13% to €29.2MM. Cryan, however, took a pay cut of €400,000 and earned €3.4m last year.

As the FT recalled, during DB's annual press conference in February, Cryan went so far as to call the higher 2017 bonuses a “one-off investment” necessary “to secure our franchise and to strengthen our position in key sectors”, adding that “in the coming years, these kind of bonus payments will only be justified if the bank performs correspondingly”.

Sadly for its employees, SocGen did not quite share this view the relationship between variable comp and capex as one to one.