The annual bonus pool of Credit Suisse Group AG experienced a dramatic 50% drop to 1 billion francs as a result of a loss in 2022 that obliterated a decade’s worth of earnings. Factors contributing to this downfall include a plummeting share price, the departure of affluent clients, and the diminishing credibility of the bank.
In light of these events, the bank is now counting on a 70% surge in stock prices to bolster its annual bonus pool. Ulrich Koerner, Credit Suisse’s Chief Executive Officer, informed Bloomberg that the restructured bank will prioritize focus and risk mitigation. He stated, “We will be very profitable and we will reward shareholders.”
In addition, Credit Suisse Group AG’s top executive disclosed plans to take its spinoff investment bank, First Boston, public by 2025, as reported by Bloomberg.
So, what went awry for Credit Suisse? On March 14, the bank’s 2022 annual report highlighted “material weaknesses” in internal controls concerning financial reporting, as well as ongoing customer outflows. Confidence in the institution has been shaken by a series of scandals, leading to customer withdrawals in the fourth quarter amounting to over 110 billion Swiss francs ($120 billion).
The origin of these issues can be traced back to the 1980s and 1990s when Credit Suisse merged with First Boston, forming Credit Suisse First Boston. This entity served as the investment banking division until 2006. By the close of 2021, Credit Suisse had amassed over 1.6 trillion Swiss francs in assets and employed more than 50,000 individuals.
The bank’s troubles escalated in 2019 when Pierre-Olivier Bouée, the Chief Operating Officer, was exposed for hiring private investigators to surveil top-tier employees. His termination soon followed, coinciding with the bank’s announcement of the private investigator’s suspicious suicide.
Credit Suisse’s woes continued in March 2021, as they shuttered and liquidated multiple investor funds, totaling $10 billion, affiliated with Greensill Capital. Greensill declared insolvency that same month, resulting in investor losses nearing $3 billion.
In February 2022, a substantial leak involving over 30,000 client records exposed more than $100 billion in wealth held by individuals implicated in heinous crimes such as torture, drug trafficking, money laundering, and corruption, according to The Guardian. This disclosure further tarnished the bank’s reputation and intensified investor apprehension.
Since 2019, Credit Suisse has experienced several leadership changes, with the most recent occurring in July 2022 when the group appointed a new CEO. Axel Lehmann succeeded Antonio Horta-Osorio as Chairman in January 2022 after Horta-Osorio resigned due to quarantine rule violations during the pandemic.
The question remains: Will the 2025 IPO save the day? On Tuesday, CEO Ulrich Koerner revealed plans to take First Boston, the bank’s spinoff investment entity, public by 2025. As part of Koerner’s restructuring strategy, the IPO aims to preserve high-performing investment banking sectors, such as merger and acquisition advising, while shifting the parent company’s focus toward wealth management.
Credit Suisse announced earlier that senior leaders in the spun-off unit could receive up to 20% of shares. After the IPO, employees would be granted restricted share units that would vest three years later, subject to an additional holding requirement.
Today the bank announced its intention to borrow a sum upwards of 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank, under a covered loan mechanism in conjunction with a short term liquidity facility.
Hopefully this will pour oil on the water and bring a little stability after a couple of weeks of bad news in the banking sector.