The troubled bank was taken over by UBS in March.
(Photo: Reuters)
Zurich A number of senior Credit Suisse managers are opposed to the removal of bonus payments linked to the performance of certain subordinated bonds, so-called AT1 bonds. The bankers are considering joining investors’ complaints against a decision by the financial regulator Finma, which ordered the write-down of these subordinated bonds in the course of the emergency takeover of Credit Suisse by UBS. This was confirmed to the Handelsblatt by a person familiar with the process. The Financial Times previously reported on it.
In mid-March, Credit Suisse customers had withdrawn assets from the troubled bank on a large scale. In the meantime, CHF 10 billion was flowing out every day, so that Credit Suisse’s liquidity was no longer sufficient to handle the payments. The Swiss National Bank (SNB) tried to stop the market panic with liquidity aid, but it didn’t help: On March 19, the second largest Swiss bank had to be rescued through an emergency merger with UBS.
>> Read here: Contradictions in Finma’s disposition give complaining investors hope
A central component of the rescue deal: Credit Suisse wrote off the AT1 bonds in full on Finma’s instructions in order to strengthen the bank’s equity base. Investors in risky interest-bearing securities suffered a total loss.
The same happened to employees at management levels below the board of directors: They had received deferred bonus payments, so-called “Contingent Capital Awards” (CCAs), amounting to around $400 million. Like the AT1 bonds, the bonus entitlements themselves could expire in the event of a so-called “viability event”, i.e. in the event of an event that jeopardizes the continued existence of the bank. Credit Suisse therefore at times allocated the claims to the bonus payments to equity, as did the AT1 bonds.
In an order dated March 22, FINMA made it clear that the write-down of the AT1 bonds would also invalidate the bonus entitlements of the Credit Suisse managers from the CCAs. The document, which was published by the Antigua News website, among others, and whose authenticity was confirmed to the Handelsblatt, also shows that Credit Suisse defended itself against the loss of bonus payments.
Lawsuits are growing
The bank’s lawyers argued in a similar way to the AT1 investors who lodged a complaint against the Finma decision: From their point of view, the contractual prerequisite for a write-off of the bonuses is not given. These stipulate that the bank has made use of state aid. Another requirement is that these relief measures have the effect of strengthening the bank’s capital base.
At this point, representatives of the plaintiff investors as well as the Credit Suisse lawyers see a contradiction: Credit Suisse has made use of state aid. But these were liquidity aids. Credit Suisse borrowed fresh money – secured and unsecured – from the SNB to service the requested payouts.
Paradeplatz: home of UBS (left) and Credit Suisse (right).
(Photo: Reuters)
However, in their appeal against Finma’s decision, the representatives of the investors deny that the aid had an effect on the equity ratio. They see themselves confirmed by the concerns expressed by the Credit Suisse lawyers, which Finma also acknowledged in its decision of March 22.
It is also a fact that the central bank’s liquidity support does not affect the structure of the Credit Suisse balance sheet: customer deposits, like government support, are liabilities. Credit Suisse merely replaces liabilities to customers with liabilities to the SNB.
Investor representatives therefore see a good chance that the St. Gallen administrative court will also come to the conclusion that the write-down is not covered by the bond conditions. The Credit Suisse lawyers also deny that Finma has the authority to order the bonuses to be written off, since the claims from the bonuses have not been included in equity since January 2023.
If the Credit Suisse managers also take action against the Finma ruling, the wave of lawsuits surrounding the emergency rescue of Credit Suisse is likely to increase. For example, the Quinn Emanuel law firm has filed several complaints against the Finma decision before the Federal Administrative Court in St. Gallen on behalf of investors. The law firm represents professional investors and private investors who had invested over 4.5 billion francs in the paper.
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