Dresdner in stand-off on retention bonuses

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Dresdner Bank is refusing to offer blanket retention bonuses to disgruntled investment bankers at Dresdner Kleinwort Wasserstein (DrKW) after it cancelled plans last week to create a separate unit for the bank and float it off.

Last year the bank paid nearly €500m ($435m) in two-year retention bonuses to staff at DrKW to stem departures after failed merger talks with Deutsche Bank and Commerzbank.

When Allianz this year bought Dresdner, headed by Bernd Fahrholz, it announced a plan to float DrKW and give bankers an equity stake in the firm to incentivise them.

The bank is, in effect, challenging bankers to either put up with the new strategy or leave and take their chances elsewhere. It has folded corporate and investment banking into a new unit and will fire 1,500 bankers mainly outside Europe to save €500m. The strategic U-turn has disappointed senior bankers, who wanted a direct stake in the investment bank, and had raised fears that staff could leave.

One senior banker at Dresdner in Frankfurt said: 'There is no intention to have a broad-based retention scheme like last year. When you implement a strategic change like this, it is important to have people reflect on where they fit in. If they do not buy into it, then perhaps they should leave. We do not want a lot of staff sitting around because they have been offered another bonus just to stay on.'

He argued that many people who received two-year retention guarantees last year had already been well paid, particularly given the slowdown in market activity. 'We will incentivise those who perform well, but I would challenge many people here to claim they have not been looked after. If they do not like the new business, they have guarantees that run out next year, or they can try their luck at getting these guarantees bought out,' he said.

A senior source in London also said the bank had no immediate plans to launch a widespread share ownership scheme in Allianz shares to keep staff happy. Staff who held shares in the previous DrKW scheme have been able to sell their shares or options since the change in control, and have no equity incentive to stay at the firm.

The decision not to offer blanket retention bonuses is an unusually candid and bold move by Dresdner. One senior banker at DrKW said: 'They have sent a clear message. Virtually all investment banks are overstaffed. This is a clear admission that DrKW cannot be profitable in the current environment and is not going to pay silly money to buy business.'

Fear of a prolonged downturn in activity has played into Dresdner's hands. While it forced the bank to pull plans to launch an IPO of DrKW, it lowers the risk of mass team moves to other houses. 'There are not a lot of places that can afford to hire away big teams, and in times like this you might prefer to be part of a big group such as Allianz,' one senior banker said.

He said most people would put up and shut up. 'I have not heard many questions about the strategy, more about the dreadful way in which it was communicated,' he said.

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