Credit Suisse staff prepare to sue regulator Finma over lost AT1 bonuses

Employees at Credit Suisse are preparing to sue the Swiss financial regulator over a $400 million bonus that was scrapped after the bank was rescued by UBS.

Thousands of Credit Suisse’s top bankers are tying some of their bonuses to the group’s additional first-class bonds, securities that were destroyed in a takeover by Swiss authorities in March.

Law firms Quinn Emanuel and Pallas, which are already suing Swiss regulator Finma on behalf of investors holding AT1 bonds, have been asked on several occasions by Credit Suisse executives to take legal action on their behalf, several people say. the case.

The lawyers do not yet know whether Credit Suisse employees’ claims can build on existing suits filed against Finma or whether they will have to be filed separately, the people added.

“Credit Suisse managers from around the world have contacted us to see how we can help them,” said one person involved in the discussions. “There’s a lot of overlap between the two positions, but they’re not exactly the same.”

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The bonuses date back to 2014, when the bank’s managing director and director-level staff were offered contingent capital allowances as part of their remuneration. The unconventional fees are designed to mimic AT1s, which can be converted into shares or written down to zero if the bank is in trouble.

After three years, CCAs typically amounted to about 10 to 15 percent of a manager’s total bonus and vest. They also provided two interest rates per year. In 2021, the last year they were awarded, more than 5,000 Credit Suisse employees received them.

AT1 is a type of hybrid debt instrument created after the 2008 financial crash to provide banks with greater capital flexibility in the event of crises.

Credit Suisse first asked Finma if CCAs could be treated differently from AT1s, but employees were told three weeks ago that their fees would be scrapped along with AT1s. UBS said this week that it will book a $400 million gain on the move once it completes the acquisition.

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On Monday, Credit Suisse staff were informed that they would receive the last interest payment on the CCAs before they are cancelled. The bonuses were also earned in other ways, such as stock awards, as Credit Suisse’s share price has fallen 93 percent since the start of 2021.

Last month, the Swiss government ordered to cut the bonuses of around 1,000 senior Credit Suisse bankers. According to the decision, the bonuses of the board members were canceled, while the employees one level below suffered a 50 percent cut. Staff with a lower level were reduced by 25 percent.

The handling of AT1s proved to be one of the most divisive aspects of UBS’s $3.25 billion purchase of its rival. Quinn Emanuel and Pallas represent investors in a separate suit that own more than a third of the $17 billion worth of AT1 bonds that became worthless.

Last week, after the early victory of the complainants in the expected long-running case, Finma was forced to publish the decree destroying their investments.

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The judge overseeing the case, which was filed in the eastern Swiss city of St Gallen, ordered the regulator to hand over the order, giving AT1 bondholders a firmer footing to challenge the write-off.

Credit Suisse, Finma, Quinn Emanuel and Pallas also did not comment.