With a loss that wiped out a decade’s worth of earnings in 2022, Credit Suisse Group AG’s annual bonus pool dropped 50% to 1B francs. Reasons? A drop in the share price, an exodus of wealthy clientele, and a deterioration in the bank’s credibility.
This comes right after the sudden collapse of the Silicon Valley Bank and Signature Bank which rocked the tech startup ecosystem.
Presently, the annual bonus pool is based on a 70% increase in stock prices. Credit Suisse CEO Ulrich Koerner told Bloomberg that the reconfigured bank will be more focused and less risky. “We will be very profitable and we will reward shareholders.”
What went wrong with Credit Suisse?
Credit Suisse said in its 2022 annual report on Tuesday, 14 March, that it has uncovered “significant shortcomings” in internal controls over financial reporting and has not yet stopped customer outflows.
The reporting flaws come as Credit Suisse attempts to recover from a succession of crises that have shaken investor and client confidence. Consumer outflows were more than 110 billion Swiss francs ($120 billion) in the fourth quarter.
It all started when Credit Suisse merged with First Boston in the 1980s and 1990s to form Credit Suisse First Boston, which served as its investment banking subsidiary until 2006.
Credit Suisse reported about 1.6 trillion Swiss francs in assets and over 50,000 employees at the end of 2021.
Credit Suisse operates a Swiss bank as well as wealth management, investment banking, and asset management.
The 50B Swiss francs lifeline
In 2019, the Chief Operating Officer, Pierre-Olivier Bouée, was sacked when it was discovered that he had hired private investigators to spy on high-level staff. The private investigator also strangely “took his own life,” according to the bank, which simultaneously announced Bouée’s dismissal.
Credit Suisse also declared in March 2021, a month before the Archegos incident became known, that it was terminating and liquidating multiple $10 billion investor funds granted to another financial services company, Greensill capital. In March 2021, Greensill declared bankruptcy.
According to reports, investors lost about $3B as a result of this.
According to The Guardian, a major leak of over 30,000 Credit Suisse clients revealed over $100B in wealth owned by persons who benefitted from “torture, drug trafficking, money laundering, corruption, and other serious crimes” in February 2022.
This disclosure harmed the bank’s reputation even more, raising investor fears.
The bank’s top leadership has also changed several times since 2019, with the most recent changes occurring in July 2022, when the firm received a new CEO.
Axel Lehmann, the group’s Chairman, took over from previous Chairman Antonio Horta-Osorio in January 2022, after Horta-Osorio resigned for violating quarantine restrictions during the pandemic.
Amid the search for investors, Credit Suisse CEO Ulrich Koerner announced recently that the bank intends to take Credit Suisse’s carved-out investment bank Firdt Boston public by 2025.
Credit Suisse said earlier today that key executives in the newly formed entity will receive up to 20% of the company’s stock. Following an IPO, employees would receive restricted share units, which would vest three years later and be subject to a further holding requirement.
The Swiss central bank’s decision to provide Credit Suisse a lifeline of 50 billion Swiss francs (£44.5 billion) has been “welcomed” by Chancellor Jeremy Hunt.
With the central bank loan, the bank declared that it was “taking decisive action to pre-emptively boost its liquidity” after its shares fell by almost 30%, escalating concerns about a potential worldwide financial disaster.