Credit Suisse Bonuses to Have Bonds That Can Be Wiped Out

Credit Suisse Group AG, the second-largest Swiss bank, is paying part of 2013 bonuses to top employees in bonds that can be wiped out if the firm fails to maintain enough capital.

About 20 percent of 2013 deferred pay for directors and managing directors will be granted in the form of debt known as contingent-capital securities, which lose value if the firm’s common equity ratio falls below 7 percent, according to a Jan. 21 staff memo obtained by Bloomberg News. A representative for Zurich-based Credit Suisse confirmed the memo’s contents.

Credit Suisse is joining UBS AG, Switzerland’s biggest bank, in paying staff partly in contingent capital, which the two lenders have to raise by 2019 to satisfy regulatory requirements. The awards seek to align the interests of employees and shareholders and give incentives to limit risk. Credit Suisse staff will also receive shares, some of which can be clawed back, as part of their deferred compensation.

“We believe our compensation structure will satisfy our key stakeholders while also allowing us to compensate our employees fairly and competitively in today’s environment,” according to the Credit Suisse memo.

UBS paid out 500 million francs ($558 million) of its 2012 bonus pool in bonds that will be written off if the bank’s common equity ratio falls below 7 percent or the company needs a bailout. The bank said it could increase capital by about 1 percentage point through awarding bonuses in contingent notes over the next five years.

Plus Bonds

Barclays Plc awarded part of its 2010 bonus pool under a “contingent capital plan” whereby bonuses were deferred over three years and were only to be paid out if the group’s core tier 1 ratio, a measure of financial strength, is at least 7 percent.

Credit Suisse has previously given employees awards that link pay to reducing risk at the bank and boosting capital.

The company last year awarded part of bonuses in so-called Plus Bonds, which were based on a trading portfolio of structured product securities with a maturity of 3 1/2 years. The bank, which in 2008 awarded bonuses linked to a pool of toxic assets, also granted about $800 million in structured notes linked to derivative counterparty risks, designed to help cut risks and improve capital, as part of its 2012 payouts.