Deutsche Bank’s Numis millionaires must be feeling very fortunate
As of last Friday, Deutsche Bank has some new UK employees. Around 350 people are now working for 'Deutsche Numis' the company formed by Deutsche Bank's purchase of Numis for £410m ($497m). Given that Numis itself employed 344 people, presumably all of its staff have moved across. Some appear to have been paid very handsomely in the process.
At the end of 2022, Numis created a long term incentive plan (LTIP) for its executive directors, under which its co-chief executives (Alex Ham and Ross Mitchinson) received shares equivalent to 400% of their salaries. At the time, Numis stipulated that these shares would vest after three-years only if certain conditions were met. Those conditions were based on a complex formula based on the three-month average return index for Numis shares, taking into consideration the value of dividends reinvested. Only if the formula generated returns of more than 20% would Ham and Mitchinson receive 100% of the awards. And then they'd need to wait another year before selling the shares on.
Given that Ham and Mitchenson were each paid £475k last year, their LTIP bonuses were presumably worth £1.9m at the time of issuance, and as much as £3.1m under the terms of Deutsche's offer. The two men are the new co-CEOs of Deutsche Numis and documents released last week reveal that those LTIP awards vested immediately, subject to unspecified "performance conditions." It's not clear whether those conditions are as strenuous as those specified at the time of issuance.
Hopefully not, because they would almost certainly not be met. When Numis issued a trading update for the three months to June, it stated that its revenues were 'below the first half run-rate' and that market conditions would 'remain difficult.' This may be an understatement: data from Dealogic suggests that year-to-date UK investment banking revenues at Numis are €28m ($30m), down from €51m in 2022. Numis's peers, including Liberum, Panmure Gordon and Peel Hunt have all been reporting losses. Peel Hunt shares are down nearly 30% from their May peak.
In Deutsche Bank, Ham, Mitchenson and their 342 Numis peers have clearly found a helpful port in the storm. They have also found an employer with a recent history of skewing compensation in favour of salaries rather than bonuses, which seems helpful right now. It's not clear whether Numis people are joining on Deutsche Bank salary bands, but under the terms of the acquisition they're eligible only for a 'transition' bonus, equivalent to 25% of the (probably paltry) Numis bonus pool for the year ending September 30th and communicated only in March 2024.
For the moment, Deutsche Bank seems pretty excited about its acquisition. The German bank now has 155 dealmakers focused on the UK, compared to 35. It has a strengthened UK mid-market M&A franchise and a strengthened UK ECM franchise, even though Dealogic puts Numis's UK M&A revenues at just €26m and its ECM revenues at a mere €6m so far in 2023.
There may be a few issues longer term. Sources at rival firms point out that as providers of "non-independent" research, Numis analysts have been free to pitch for corporate finance deals. This doesn't happen at Deutsche Bank, which is subject to far stricter compliance requirements. For the moment, Deutsche and Numis are operating as independent business, but when the two fully merge in 2024, Numis analysts will have their activities seriously crimped.
There could be cultural issues too. Deutsche Bank has a target of increasing diversity and inclusion, particularly at senior levels. The most recent gender pay gap report for Numis reveals that 93.8% of its upper quartile earners are men, along with all of the managing directors in its investment bank.
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