Credit Suisse has given up trying to save its staff bonuses that were wiped out following the bank’s rescue by its rival UBS.
Just over $400mn of deferred pay for Credit Suisse middle managers was reduced to zero as a result of the state-orchestrated takeover and several bankers are preparing lawsuits against Finma, the Swiss regulator, over their losses, the Financial Times reported this week.
Credit Suisse had appealed to Switzerland’s Federal Administrative Court to protect the bonuses, which were linked to additional tier 1 bonds that were also wiped out. But the St Gallen court revealed on Tuesday that the bank had withdrawn its appeal.
“The withdrawal has the effect of rendering irrelevant the initiated proceedings, and the FAC accordingly struck them off the list of cases,” the court said, adding that a further appeal could be made to Switzerland’s Federal Supreme Court.
The bonuses date back to 2014 when managing director and director-level staff at the bank were offered a contingent capital award as part of their remuneration. The unconventional awards were designed to mimic AT1s, which could be converted into equity or written down to zero if the bank was in distress.
CCAs typically made up about 10 per cent to 15 per cent of a manager’s total bonus and vest after three years. They also provided two interest payments a year. In 2021, the last year they were granted, more than 5,000 Credit Suisse staff received them.
Credit Suisse declined to comment on its withdrawn appeal.
As part of its attempts to protect staff bonuses, Credit Suisse told Finma that it did not agree with its decision to write down the AT1s.
The court also said that it had received 230 appeals involving 2,500 appellants against Finma’s decision to cancel the AT1 instruments.
Law firms around the world, notably Quinn Emanuel in Zurich and Pallas in London, have signed up bondholders representing more than a third of the $17bn that was invested in the AT1s when they were cancelled.
AT1s are a type of hybrid debt instrument created after the financial crash of 2008 to give banks greater capital flexibility in the event of crises.
UBS chair Colm Kelleher was asked on Wednesday morning about Finma’s decision to cancel the AT1s when other regulators said they would not have done so.
“With respect, read the prospectus,” Kelleher said at a Wall Street Journal event. “It was very clear in the Swiss prospectus that viability was a wipe out issue — very clear.”
Separately, the Swiss government on Tuesday confirmed plans to cut the full bonuses for around 1,000 of the most senior bankers at Credit Suisse for 2022 and 2023.
Under the proposals put forward by Switzerland’s Federal Council last month, Credit Suisse’s executive board members would have their bonuses cancelled, while staff one level below would suffer a 50 per cent cut. Staff a level below that would receive a 25 per cent reduction.
“In addition, Credit Suisse must examine the possibilities for recovering remuneration already paid out to members of group management since 2019, and to report to the [Federal Department of Finance] and Finma on the matter,” the ministry said in a statement.