(Bloomberg) -- Deutsche Bank AG has agreed to increase salaries by 12.5% for a large swathe of its German staff, adding to cost pressures for Chief Executive Officer Christian Sewing.

Roughly 8,700 employees at the Postbank retail business will see their wages go up by 7% in June and then receive a second raise of 4.5% in July next year, Deutsche Bank said in a statement on Thursday. An additional agreement to raise everyone’s pay by at least €270 in June means the average increase will be 12.5% through the period, a spokesman said.

Sewing has pledged to cut expenses and improve profitability, but wage inflation as well as other costs to fix client service problems have made that goal harder to reach. The lender said on Friday it will set aside as much as €1.3 billion ($1.4 billion) in legal provisions tied to Postbank this quarter, though it confirmed its full-year guidance for adjusted expenses, which strip out litigation.

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First-quarter personnel costs at Deutsche Bank rose 9% on the previous year’s period, it reported last week. Analysts polled by Bloomberg expect an increase of 1.3% for the year as a whole. 

The Postbank unit is going through upheaval after an IT project last year caused service problems for thousands of clients. Deutsche Bank management board member Claudio de Sanctis, who oversees the lender’s retail business, has vowed to cut branches at the business and he has said there’s “no way around job cuts.”

The wage deal on Thursday ends months of negotiations with the trade union Verdi, which had initially asked for a raise of 15.5%. 

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