Morning Coffee: The worst parts of the latest Credit Suisse bonus clawback. The banker who can see into the future
Just when it was almost seeming as if the BigTech sector had taken over as the main targets of public anger, the Credit Suisse crisis seems to have brought bankers – and their bonuses – back into focus once more. As well as facing angry shareholders at a meeting, Credit Suisse's “top executives” are now faced with having bonuses cancelled by order of the Swiss government.
Except it's not just the very top people. According to the press reports, “about 1,000 senior bankers” are going to be affected – based on the compensation report we’d guess that the exact number is likely to be 1,155, because that’s the number of “Material Risk Takers and Controllers” who received a bonus for 2022. (There are another 400 MRTC-level staff at CS who didn’t get a bonus at all).
The compensation report also said that across this category of people, the average bonus for 2022 was just over $200k, which is not exactly great for a peer group consisting of the top MD’s. The pain is being meted out in proportion to seniority. Under the Swiss government's edict, the executive board are losing their entire bonuses, while staff one level below the board are losing half, and the level below that are getting cut by 25%. The total amount saved by the cuts is expected to be CHF60m (USD66m).
It gets worse, of course. The executive board were at one point going to be sharing in a CHF30m “transformation award”, and the MRTCs had been awarded lavish retention payments, which significantly made up for the lousiness of the normal bonuses. It looks very much as if those are not going to be paid out in the majority of cases, and the Swiss government are even talking about the possibility of clawing back payments from previous years.
This may result in a certain amount of schadenfreude within Credit Suisse. For the last year there has been considerable ill feeling on the part of markets MDs, who feel that they have got the short end of successive bonus rounds, and have been subject to clawbacks while their colleagues in capital markets and advisory have been protected. (A large part of the losses from Greensill and Archegos fell onto the Markets P&L, although it’s not clear how much of the blame really lay there). The markets staff didn’t have any equivalent of Michael Klein to protect them. Now it turns out that everyone is a lot more equal at the top than they thought they might be.
And the bitterest blow is that it might not even be possible to walk away. If the government is trying to make a point, then UBS might not feel able to release any bankers from the onerous clawback arrangements applied to cash bonuses paid out in 2021 and 2022. These require bankers to write Credit Suisse a cheque on departure, for a proportionate share of the gross award, and then claim income tax back later for themselves. Being stuck at a bank you don’t want to work for, with zero bonus as a best-case outcome and which you can’t afford to leave unless and until you’re fired must be a peculiar form of hell for bankers who up until a few years ago might have considered themselves to have reached the summit of their industry.
Elsewhere (across the street in Zurich), it seems that Colm Kelleher is not only an exceptional banker, but blessed with the gift of second sight. As soon as he took over as Chairman at UBS, Kelleher reportedly asked for the contingency plans for a merger with Credit Suisse to be updated, and then went further, assigning a mandate to Morgan Stanley to really get ready on a proper plan for M&A in case the opportunity came up.
This has certainly meant that Kelleher is one of the only people to come out of this episode with his reputation intact. But it also raises an interesting question; if Kelleher had been planning a UBS/CS merger for nearly a year, then at what point during that planning process did he make the decision that Ralph Hamers wasn’t the right person to be CEO of the merged group? Arrangements with Sergio Ermotti certainly seem to have been made very quickly. In the circumstances, if this succession has been on Colm Kelleher’s mind for a while, you might have thought he could have come up with a more impressive leaving gift than the slightly embarrassing hamper of Swiss delicacies gifted to Hamers yesterday.
The big flex for Credit Suisse MDs is now to leave, demonstrating that someone else thought you were valuable enough to buy out your clawback. Doug Pierson, head of the industrials group for North America, is the latest to go, to Moelis. (Bloomberg)
What do Kanye West and Sam Bankman-Fried have in common? They’ve both dropped off the Forbes list of billionaires, both in circumstances where you kind of have to say they were the author of their own misfortunes. (Business Insider)
Laid-off tech workers are playing a video game called “Going Under”, in which you pretend to be a Silicon Valley intern battling monsters by night and creeping insolvency by day. They ought to do a sequel set in a bank. (WIRED)
Although Kirkland & Ellis is laying off associates to cope with the deal drought, the top lawyers aren’t sharing the pain yet; average equity partner compensation was up 2% in 2022 to $7.5mn. (Financial News)
““It is incredible how I see the same patterns with couples who make $100,000 or $1 million a year, if the communication is lacking,” according to a “financial therapist” who helps couples deal with the psychological and emotional consequences of big financial changes (positive or negative, they both apparently cause stress). This may only hold true for couples who can still afford to pay a financial therapist, though. (WSJ)
Rothschild tops an unwanted league table, as the most gender-unequal bank in London. Female staff have median compensation of only 51% of male, and median bonuses 86% lower for 2022 according to the compulsory disclosures. (Financial News)
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