Credit Suisse Slashes Bonus Accruals After Archegos Hit

(Bloomberg) -- Credit Suisse Group AG slashed the amount of money set aside for employee bonuses by hundreds of millions of dollars and used the savings to limit the financial hit from the implosion of Archegos Capital Management.

Cuts to accruals for staff compensation and other one-off items added about $600 million to underlying profit before tax for the first quarter, which is expected to be just over $3.7 billion, a person familiar with the matter said, asking for anonymity to discuss internal information.

A spokesperson for Credit Suisse declined to comment on the numbers, which were reported earlier by the Financial Times. Bonuses are accrued every quarter on a pro-rata basis, so the bank could set aside more in the remainder of the year to make up for the cuts.

Credit Suisse CEO Faces Anger in the Ranks on Archegos Mess

Credit Suisse emerged as the big loser in global investment banks’ race to exit trading positions as Archegos collapsed, pushing it into a 900 million-franc ($975 million) pretax loss for the quarter and prompting a management shakeup. The bank, which is also dealing with the collapse of a group of supply chain finance funds, has already said that top management won’t get a bonus for last year.

Compensation and benefits are among banks’ biggest operating expenses, so cutting accruals for variable compensation provides a lever to quickly respond to headwinds and losses. Credit Suisse set aside 2.3 billion francs for pay in the first quarter of last year, a decline from 2.5 billion francs the prior year, as the onset of the Covid-19 pandemic forced lenders to protect their finances.

The bank now faces the difficult prospect of keeping onboard star traders, dealmakers and other top employees amid the uncertainty of the losses and future compensation, particularly after the shares used as part of pay packages have declined in recent weeks.

The Greensill and Archegos hits have wiped out the benefits of what the bank had indicated had been a banner first quarter, particularly at the investment bank. At the same time as employee discontent, the bank is also grappling with the fallout from Greensill on its institutional and wealth individual clients and the degree of losses investors in $10 billion supply chain funds will ultimately have to bear.

Credit Suisse Makes $1.7 Billion Greensill-Linked Fund Repayment

The bank on Tuesday said that it expects to make a further $1.7 billion payment to investors in the funds, bringing to about $4.8 billion the amount paid back so far. It expects to make a further update by the end of the month.

Credit Suisse is scheduled to publish its first-quarter earnings on April 22.

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