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Bonus woes Credit Suisse freezes bonus pool after tough year of rebuilding

Tidjane Thiam

Credit Suisse CEO Tidjane Thiam thinks it's time to award top executives double-digit pay rises

(Keystone)

Credit Suisse has frozen its 2018 bonus pool while awarding its top executives double-digit pay rises, as it tries to keep investors onside when it reports higher annual pre-tax profits next week.

The Swiss bank’s overall pool of bonuses will remain flat at about CHF3.2 billion ($3.2 billion) in the latest pay round as the board seeks to balance distributions to shareholders with pay for employees, according to people with knowledge of the decision.

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However, its top executives are set to receive a significant pay boost worth tens of millions of francs after removing a voluntary cap on their pay imposed in the past two years. The move comes despite an almost 30% fall in the bank’s share price in the past year.

Credit Suisse has attracted controversy before over pay. The bank, led by chief executive Tidjane Thiam, was criticised by investors for boosting bonuses 3% in 2017 and 6% in 2016, despite making more than CHF3 billion of annual losses during a painful restructuring over that period.

This time the rewards will not fall evenly. Credit Suisse will continue the trend set in recent years of awarding its wealth managers and private bankers a larger slice of the pie to reflect their strategic importance to the group and higher profitability, the people said. 

By contrast, the bank’s struggling traders will see their share of incentive pay fall after the global markets business abandoned its revenue target and posted a surprise loss in the third quarter. However, Credit Suisse’s M&A advisory bankers are expected to fare much better after generating more fee income last year.

A spokesman for the bank declined to comment.

Green shoots

The situation is bleaker at Deutsche Bank, where investment banking staff are bracing for a double-digit fall in their bonus pool after the unit recorded one of its worst years since the financial crisis.

At Credit Suisse, the top 12 managers on the executive board could earn a maximum combined CHF115 million for their work in 2018 if they hit performance targets, up from CHF70 million and CHF73 million in 2017 and 2016 respectively. However, the amount actually awarded is expected to be less than CHF95 million, one of the people said.

Thiam has said previously the bank had achieved 16 of its 17 main strategic objectives. Executives are judged on a range of factors such as the share price, return on equity and improvements to the company’s culture, according to its annual report.

The bonus decisions were made this week by the compensation committee, led by non-executive director Kai Nargolwala, and will be formally signed off by the full board before Credit Suisse reports its annual results on February 14.

Thiam has dramatically reshaped the 162-year-old Swiss bank since joining from insurer Prudential in July 2015, refocusing on managing the wealth of the world’s ultra-rich while downsizing the unpredictable and capital-intensive trading arm.

While there are green shoots, especially in Asian wealth management, and the lender has slightly mollified investors by starting a CHF3 billion buyback programme, the shares have fallen more than 45% under his leadership and the investment bank still weighs on results more than three years later.

In a December strategy update, Thiam guided that 2018 pre-tax profits would rise to between CHF3.2 billion and CHF3.4 billion, compared with CHF1.8 billion the previous year and losses in 2016 and 2015.

However, the bank may be poised for a poor fourth quarter if its rivals’ results are an indicator. UBS blamed an economic slowdown and geopolitical tensions for $13 billion of client outflows in wealth and asset management, while its investment bank swung to a loss after big falls in credit and equities trading.

Special scheme

This week France’s BNP Paribas and Société Générale slashed financial targets and pledged to cut hundreds of millions of euros in investment-banking costs after reporting similarly poor markets performances.

Even as Credit Suisse’s bonus pool has been gradually creeping back up in recent years, overall pay – which includes both salaries and bonuses – will fall to slightly less than CHF10 billion in 2018 versus CHF16 billion in 2011, the people familiar with the pay decisions said. 

This is mainly because the bank has culled many of the expensive external contractors and consultants it previously relied on, bringing more roles in-house and replacing back-office staff with automated processes, they said.

More than 85% of top-earners’ compensation is in deferred shares, usually over three years, according to company filings.

Two years ago, Thiam and his top managers took a 40% cut to their short-term bonuses and long-term incentive awards after shareholders and proxy advisers rebuked them for boosting their pay despite heavy losses.

It also emerged that Credit Suisse paid its top investment bankers and traders almost CHF250 million under a special scheme created to stop them jumping ship during the bank’s restructuring.

As a result, Credit Suisse’s remuneration report was approved by only 58% of shareholders at its annual meeting in 2017, forcing the board to backtrack and slash executive payouts for two years. In the following year, however, 81% of investors backed the bank’s pay report.

Copyright The Financial Times Limited 2019


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