Credit Suisse Bankers Shouldn’t Have Been Stripped of Bonuses, Court Says

(Bloomberg) — A dozen former Credit Suisse bankers were unlawfully stripped of their bonuses when UBS Group AG bought its collapsing rival, a Swiss court said in a verdict that could pave the way for fresh lawsuits from hundreds more employees over unpaid compensation. 

The country’s finance ministry issued an order following the bank’s rescue by rival UBS Group AG in March 2023, telling Credit Suisse to cut bonuses altogether for its executive board members, reduce them by 50% for managers one level lower, and by 25% for employees two levels down. 

The provision of state guaranteed aid had been the justification for the bonus ban. On Wednesday the Federal Administrative Court ruled in a “pilot judgment” for a group of 12 that the government’s decision was wrong. The decision could potentially affect about 1,000 people it said.

Neither the Finance Ministry nor UBS “could demonstrate that even a single one of the twelve managers concerned had caused excessive risks and jeopardized the financial situation of Credit Suisse through their wrongful actions or omissions,” the court said in a statement.

Any final judgment at the administrative court could be appealed up to the Swiss Supreme Court. The ministry is examining the possibility of an appeal, according to a statement. UBS said that it has taken note of the decision, declining to comment further. 

A series of scandals that dogged the bank in the years before its 2023 rescue shattered confidence among shareholders and clients, leading to billions of dollars in outflows in the final months. Credit Suisse’s executive board waived its variable compensation in the immediate aftermath of the takeover. 

The pool of variable compensation awarded by Credit Suisse for 2022, its final full year as an independent bank, was 2.76 billion Swiss francs ($3.3 billion), a figure cut dramatically by the collapse of the firm’s share price during the takeover. The finance ministry’s cancellation order, which affected bonuses not already paid out, was 62 million francs in total, according to government data.

The court said that not only was the decision wrong in its application of banking law but it was also disproportionate. 

Switzerland’s Banking Act does not foresee compensation-related measures as sanctions for misconduct by employees of a bank receiving state aid, and that renders the responsibility of those managers not “legally relevant,” the court said.

Back in 2023, the government had invoked the same act which, it said, allows it to impose remuneration-related measures “if a systemically important bank is granted direct or indirect state aid from federal funds.”

The court said the notion of a definitive payment ban was “considerably more onerous” than a temporary one and was inappropriate given that all state aid to Credit Suisse had ceased by Aug. 11, 2023. 

The Finance Ministry said in its statement that unrelated to a possible appeal, the government will decide in the coming weeks on whether to propose changes to the law regarding bonus clawbacks. Ministers are expected to decide on this on June 6 as part of a wider set of laws.  

UBS or the ministry have 30 days to appeal the ruling up to the Supreme Court. Four other cases, with a small number of appellants, are currently on hold, a court spokesman said. 

They’ll remain on hold until the decision either enters into force because no one appealed or once the country’s top court has ruled on it. A binding decision either way could encourage many of the other hundreds of bankers to step forward with similar claims.

–With assistance from Bastian Benrath-Wright.

(Updates with comment from Swiss ministry in fifth and 12th paragraphs.)

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