December 6, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Credit Suisse promises to pay bonuses to staff despite UBS rescue

Credit Suisse has told staff that it will continue to hand out bonuses and pay rises as planned this year, despite the bank having to be rescued by UBS in a SFr3bn ($3.25bn) deal over the weekend.

Shortly after the Swiss lender was saved from bankruptcy on Sunday night, chair Axel Lehmann and chief executive Ulrich Körner reassured employees in a memo that they would still be paid on Friday.

“We will pay salary and bonus, where outstanding, as per the previously communicated schedule . . . [and] we will continue to allocate for a 2023 performance bonus for those eligible,” the pair said in an internal email seen by the Financial Times. “We will continue to honour our obligations and already communicated salary increases will still be effective from April 2023.

“It remains critically important that you continue to come to the office or work according to your agreed pattern,” the memo added. The takeover by UBS is not expected to fully complete until the end of 2023.

Nevertheless, staff are set to lose significant sums as a result of the merger, which was done at a fraction of the value of Credit Suisse’s stock price last Friday and wiped out $17bn of the failed bank’s additional tier 1 (AT1) debt.

AT1 bonds, which are a form so-called contingent convertible security, and shares made up part of employees’ deferred pay, according to people familiar with the matter.

Credit Suisse’s annual report shows that it had SFr360mn of contingent capital awards, SFr565mn of share awards and SFr123mn of performance share awards outstanding at the end of 2022. It is not clear how much of the contingent capital was made up of AT1 debt.

The memo from Lehmann and Körner also promised to honour Credit Suisse’s “upfront cash awards” programme, introduced in 2022 in an attempt to slow an exodus of top staff to rivals as the Swiss lender’s prospects dimmed.

Under the scheme, directors and managing directors earning more than $250,000 were paid a larger proportion of their bonuses immediately in cash, reducing the amount paid in deferred stock. However, they would have to give back some of the money if they left within three years.

Despite the reassurances, further down the memo Lehmann and Körner warned that the Swiss Federal Council retained the right to “wholly or partially restrict” bonuses as they see fit, as well as adjust overall remuneration policy.

UBS declined to comment on its plans regarding Credit Suisse staff bonuses in general or the upfront cash awards.

Typically, bonuses at Credit Suisse have comprised three elements: a cash proportion paid immediately, a share award that can be sold after one year and a deferred stock element that can only be cashed in over a number of years — and is subject to forfeit if an employee departs.

Unvested deferred Credit Suisse stock awards will be converted into that of the new company at the rate specified by the merger agreement — one share in UBS for 22.48 shares in Credit Suisse — the memo read.

“We know that many of you will have been following the intense media coverage over the past 48 hours on the future of Credit Suisse and appreciate the enormous uncertainty and stress that this has caused,” the chair and chief executive said in the email.

Regarding job cuts, managers said they would “work diligently and at pace” to inform staff and “aim to continue to provide severance in line with market practice”.

UBS chair Colm Kelleher has said that he “intends to downsize Credit Suisse’s investment banking business” so that it accounted for no more than 25 per cent of the group’s risk weighted assets” and “align it with our conservative risk culture”.

Additionally, a plan to spin off the advisory and capital markets operations with the First Boston brand under the leadership of Michael Klein will be reviewed and could be cancelled, according to a person with knowledge of the plans.

The Swiss regulator Finma has given UBS the right to block any material changes at Credit Suisse until it is fully in control of its rival.

Credit Suisse’s flagship Asian investment conference is expected to go ahead this week in Hong Kong despite the takeover. However, the bank has rescinded all media invitations and limited attendance to clients in order to ensure “a smooth transition and seamless experience for them”.

Additional reporting by Sam Jones in Zurich

Video: Credit Suisse: what next for the crisis-hit bank? | FT Film