Credit Suisse chair signals bonus cuts after ‘horrifying year’
CREDIT Suisse Group chairman Axel Lehmann has warned employees to brace themselves for bonus cuts, as the Swiss lender embarks on a painful and costly turnaround following a grim year that forced it to tap shareholders for fresh funds.
“It was a horrifying year for Credit Suisse,” Lehmann said at the World Economic Forum in Davos, adding that people would have “realistic expectations that it will not look great” for bonuses.
Bloomberg reported earlier this month that the bank was considering cutting the bonus pool for 2022 by about half, as the bank was likely to report another quarterly loss amid billions in dollars of client outflows.
Lehmann sought to appease shareholders by showing moderation on bonuses, while retaining valuable personnel. These include investment bankers who will form part of the First Boston business that it plans to start, as well as private bankers in growth regions such as the Middle East and Asia.
“On one hand, you have the topic of retention, and then we also have plenty of parts of the group that are doing very well,” he said on Tuesday (Jan 17).
“So you need to compensate somewhat fairly, but you also need to look at it from the shareholders’ perspective. When you suffered huge losses, it is clear that the budget gets cut also on bonuses.”
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Credit Suisse is not alone in signalling lower variable pay, though reductions at the lender are likely to be steeper than at its Wall Street peers. JPMorgan, Bank of America and Citigroup are all weighing plans to cut bonus pools for their investment bankers by as much as 30 per cent, said sources with knowledge of internal deliberations.
The lender already slashed variable compensation by more than 30 per cent in 2021. A reduction by half would leave its 2022 bonus pool at about 1 billion francs (S$1.4 billion), down from 2.9 billion francs in 2020.
At the same time, Credit Suisse has shown a willingness to make extra payments – outside the regular bonus round – to retain top staff. The bank handed out more than US$300 million in a single month last year to retain some bankers. For the 2021 bonus round, it gave its senior staff an additional long-term award, to try to cushion the blow of cuts.
Retaining top talent is key as Credit Suisse seeks to rebuild client and investor confidence. The bank has been struggling to stem an exodus of talent amid speculation about its future.
Lehmann reiterated that the asset outflows which spooked the firm and its backers in the early days of October 2022 had started to reverse, with clients seeking to put money to work again.
Client money “has now stopped dripping out, it’s slightly coming back”, he said. “So that is very positive to see, and I’m rather optimistic for the remainder of the year. It is still early days, so it will depend on how the global economy is going.”
Credit Suisse is in the early stages of a costly restructuring that includes cutting 9,000 jobs and carving out large parts of the investment bank under the revived First Boston brand. It raised 4 billion francs from investors late last year in a two-pronged capital increase to help finance the steps.
Lehmann said the bank would update investors on the progress with the investment bank spinout and other changes when it publishes its first-quarter results next month. BLOOMBERG
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