Credit Suisse cuts bonuses following Archegos loss

Credit Suisse has cut bonuses for its staff by hundreds of millions of dollars after the Swiss lender lost $4.7bn from the collapse of family office Archegos Capital, according to people familiar with the situation.

Switzerland’s second-biggest lender by assets was the worst hit of several global banks by the collapse of Archegos, which was run by former hedge fund manager Bill Hwang. The family office was a client of Credit Suisse’s prime brokerage division, the business of lending cash and securities to hedge funds and processing their trades.

The $4.7bn of losses Credit Suisse has revealed so far are the equivalent of 18 months of average net profits for the bank and come shortly after another crisis involving its funds linked to collapsed supply-chain finance company Greensill Capital.

The Archegos and Greensill debacles have led to several internal and external probes, a swath of executives being ousted and questions raised over Credit Suisse’s risk management systems.

Credit Suisse last week said the Archegos writedown would push the bank to a $960m loss in the first three months of the year, even after it had enjoyed its strongest underlying quarter for a decade, significantly outperforming analysts’ expectations.

People briefed on the bank’s performance said its underlying pre-tax income for the quarter was expected to be just over $3.7bn, with about $600m achieved through reductions to bonus pool accruals and other one-off booked items.

Bonuses are accrued on a pro-rata basis each quarter, so there is time for the cuts to be made back should Credit Suisse continue to outperform this year and avoid further costly losses.

But its top executives face a dilemma over paying out bonuses to support staff morale, while shareholders nurse losses tied to the fallout from Archegos and Greensill. Credit Suisse’s shares are down more than a quarter since March 1 when it was forced to suspend the four supply-chain funds.

“It’s a tough one for the bank. You don’t want disgruntled employees as you end up creating this negative feedback loop,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods.

Credit Suisse’s investment bank and Asia-Pacific divisions performed particularly strongly in the first quarter. Investment bankers working outside the prime brokerage unit are frustrated that their efforts this year have been overshadowed by the two crises.

“The cut will affect senior staff a lot more than junior because more of our pay is by bonus,” said one investment banker. “So we will take a massive hit, not only on the cut to the pool, but also our deferred comp in shares, which are plunging, so it is a double whammy. We all recognise here we will have a massive staff retention issue.”

Hallett added that much of the investment bank’s strong performance had been driven by Credit Suisse’s role as a market leader in underwriting blank-cheque companies, known as Spacs. “There will be questions on sustainability on that,” he added.

When announcing the Archegos losses last week, the Swiss bank suspended its SFr1.5bn ($1.6bn) share buyback programme and cut its dividend by two-thirds, to SFr0.10 per share.

The bank’s senior executives had their bonuses for the year withdrawn. Outgoing chair Urs Rohner waived his SFr1.5m chair fee after facing criticism over his total pay of SFr4.7m for 2020, which was unchanged from the previous year.

In February, Credit Suisse shrank its 2020 group-wide bonus pool by 7 per cent, while handing out “double digit” payouts to staff in the investment bank after the division increased annual revenues 18 per cent.

Credit Suisse declined to comment.

Additional reporting by Stephen Morris in London