Credit Suisse has frozen its investment bank bonus pool for the second year running after a surge in trading revenue in 2019 was offset by big declines in its advisory and capital markets business.
The Swiss bank’s overall bonus pool for last year will stay level at about SFr3.2bn ($3.3bn) as the board tries to balance a strong increase in group net income with a falling share price in recent years, according to people with knowledge of the decision.
Within the investment bank, those working in advisory and capital markets will see their bonuses cut by a percentage in the “high teens” as the division heads for its worst annual results in at least five years.
Tidjane Thiam, Credit Suisse chief executive, has singled out the bank’s investment banking and capital markets unit as “unsatisfactory” and in November replaced its leader, Jim Amine, with leveraged finance head David Miller.
It slipped down fee league tables and posted a SFr102m pre-tax loss over the first nine months of 2019. The division is also expected to be “significantly lossmaking” again in the final quarter, the people said.
By contrast, the trading side of the investment bank more than doubled pre-tax profit to SFr908m over the first nine months of 2019. Reflecting this, traders are set to receive a boost to their variable pay, the people said. A spokesman for Credit Suisse declined to comment on pay.
Despite the bonus freeze, staff at Credit Suisse’s investment bank are likely to suffer less than many of their European peers. Barclays has cut its bonus pool by a mid-teens percentage, the Financial Times reported last month, and Deutsche Bank slashed incentive pay by as much as 30 per cent.
Based on rivals’ results, Credit Suisse’s global markets division is likely to have rebounded in the fourth quarter. Last week Deutsche Bank said revenue from fixed-income trading jumped by almost a third, while fixed income, currencies, and commodities trading on Wall Street surged by an average of two-thirds.
“I’d prefer to be here than at UBS,” one senior manager at Credit Suisse said, referring to the 50 per cent plunge in annual investment-banking profit at the Swiss lender’s crosstown rival.
Accrued compensation and benefits at the investment bank were roughly flat at SFr2.8bn for the first nine months of 2019. However, pay fell 7 per cent in investment banking and capital markets and rose 4 per cent for global markets, company filings show. This trend will diverge more sharply in the fourth quarter, the people briefed on pay decisions said.
For the whole of 2018, the two divisions were awarded a combined SFr3.5bn, leaving a SFr700m gap to be filled for the final quarter of last year if it is to remain flat for 2019.
Mr Thiam has reshaped the 163-year-old Swiss bank since joining from insurer Prudential in July 2015, targeting growth in its wealth management division while downsizing its volatile and capital-intensive trading arm.
After a rocky start, his overhaul is starting to bear fruit. Credit Suisse boosted group net income by 45 per cent in the first nine months of 2019, to SFr2.6bn, and increased wealth assets under management to a record SFr1.5tn.
Credit Suisse’s shares rose by a fifth during 2019, but have still fallen by more than half during Mr Thiam’s tenure as European banks struggle with negative interest rates and slowing growth. Mr Thiam has also been caught up in a corporate spying scandal that has called into question the culture of the lender.
The final bonus decisions will be made in the coming weeks and then formally signed off by the board and communicated to employees two days before the bank reports its annual results on February 13, one of the people said.
Credit Suisse has attracted controversy before over pay. Two years ago, Mr Thiam and his top managers took a 40 per cent cut to their short-term bonuses and long-term incentive awards after shareholders and proxy advisers rebuked them for boosting their pay despite heavy losses.
Last year this voluntary cap was removed, which meant senior executives received a double-digit pay boost worth tens of millions of francs.