Credit Suisse Group AG’s investment bank salvaged a full-year profit in 2011 by pushing 500 million Swiss francs ($549 million) of employee bonus costs into 2012.
Without the deferral, the division’s 79 million franc pretax profit would have been a loss of more than 400 million francs. The cost, stemming from a first-of-its-kind plan to pay a portion of last year’s bonuses in derivative-backed bonds, was booked this year “given the structuring, given everything that we had to do,” Chief Executive Officer Brady Dougan said today on a conference call after the bank announced fourth-quarter results.
Booking the costs in 2011 wasn’t “an option” because of accounting rules, Dougan said on the call.
Credit Suisse, Switzerland’s second-biggest bank, follows rivals including Morgan Stanley and Frankfurt-based Deutsche Bank AG in posting 2011 results that might have been worse without deferring more pay. Morgan Stanley (MS), based in New York, increased the portion of compensation deferred to future years to 75 percent from 60 percent, while Deutsche Bank’s ratio increased to 61 percent from 49 percent.
Credit Suisse’s investment bank would have reported a loss for 2011 had the expense been booked last year, Matt Spick, a London-based analyst for Deutsche Bank, told Dougan on the call. Such a loss might have spurred the bank to consider “clawing back” more compensation previously awarded to employees, he said.
“Generally for risk-taking individuals, if a division is loss-making, they would see adjustments to past remunerations,” Spick said.
Not An ‘Option’
“You make it sound like there was maybe an option to do it in 2011 or 2012,” Dougan told Spick. “We didn’t really have that option on the accounting.”
Credit Suisse posted a fourth-quarter loss of 637 million francs and a full-year profit of 1.95 billion francs. The investment bank reported a fourth-quarter pretax loss of 1.31 billion francs, partly stemming from “business we’re exiting, particularly specific areas of fixed income in which we no longer see the prospect for attractive returns,” Dougan said on the call, according to a transcript.
Credit Suisse cut its 2011 bonus pool by 41 percent to 3 billion francs from the prior year, including the 500 million francs for the bonus bonds, according to a slide presentation accompanying the conference call.
Credit Suisse excluded the cost of the bonus bonds in a separate slide estimating returns so far this year. Those awards were “separate” from any discussion of what the company’s performance might be this year, Chief Financial Officer David Mathers said on the conference call.
“I just find it very awkward that you don’t see that as an underlying cost,” JPMorgan Chase & Co. analyst Kian Abouhossein said on the call. “That’s an expense that somebody gets and will expect to get another one next year, maybe in a different form.”
Dougan responded that he and other executives were “not going to get into a detailed sort of reconciliation of that.”
“All we were trying to do is basically give an indication to how the year has started, to be honest,” Dougan said.
Credit Suisse, which in 2008 awarded bonuses linked to a pool of toxic assets, told senior staff last month that it will be paying part of their variable compensation for 2011 in bonds linked to derivatives. About 6,000 senior employees throughout the Zurich-based bank are getting the bonds, Credit Suisse said today. The bonds were designed to help the bank cut risks and improve its capital position.
“We’re able to use an element of compensation to” reduce risk, said Dougan. “It’s actually a fairly thoughtful and forward-looking way of doing it.”
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