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

by The Insights

Credit Suisse staff are preparing to sue the Swiss financial regulator over $400 million in bonuses that were canceled following the bank’s bailout by UBS.

Thousands of senior Credit Suisse bankers are seeing part of their bonuses tied to the group’s additional Tier 1 bonds, securities that were wiped out in the Swiss authorities’ orchestrated takeover in March.

According to several people familiar with the matter.

At this point, lawyers are unsure whether the Credit Suisse employee claims could be linked to existing lawsuits against Finma or should be filed separately, the sources added.

“We have been contacted by Credit Suisse managers around the world to see how we could help them,” said a person involved in the talks. “There’s a lot of overlap between the two positions, but they’re not exactly the same.”

The bonuses date back to 2014 when the bank’s chief executive and manager-level staff were offered a contingent capital bonus as part of their pay. The unconventional rewards were designed to mimic AT1s, which could be converted into shares or reduced to zero if the bank got into trouble.

CCAs were typically around 10-15% of a manager’s total bonus and vest after three years. They also provided two interest payments per year. In 2021, the last year they were granted, more than 5,000 Credit Suisse employees received them.

AT1s are a type of hybrid debt instrument created after the financial crash of 2008 to give banks greater capital flexibility in times of crisis.

Credit Suisse initially asked Finma whether CCAs could be treated differently from AT1s, but employees were told three weeks ago that their rewards would be canceled along with AT1s. UBS said this week it would see a $400 million gain from the move once the takeover is complete.

On Monday, Credit Suisse staff were told they would receive the last interest payment on the CCAs before they were erased. Bonuses have been hit in other ways, including equity awards, as Credit Suisse’s share price has fallen 93% since the start of 2021.

Last month, the Swiss government ordered the bonuses of around 1,000 senior Credit Suisse bankers to be cut. Under the decision, board members had their bonuses waived, while lower-level staff suffered a 50% reduction. Lower level staff received a 25% discount.

The handling of the AT1s has proven to be one of the most controversial aspects of UBS’s $3.25 billion purchase of its rival. Quinn Emanuel and Pallas are representing investors in separate lawsuits holding more than a third of the $17 billion in AT1 bonds that have been rendered worthless.

In a first claimant victory last week in what is expected to be a drawn-out case, Finma was forced to disclose the decree that wiped out their investments.

The judge handling the case, which was filed in the eastern Swiss city of St. Gallen, ordered the regulator to postpone the decree, giving AT1 bondholders a firmer footing to challenge depreciation.

Credit Suisse, Finma, Quinn Emanuel and Pallas all declined to comment.

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