Bonus reductions at Credit Suisse deemed illegal by the court
Laying Down the Law: Court Rulings and the Fate of Former Credit Suisse Bankers' Bonuses
The Swiss government's controversial move to whisk away bonuses from former Credit Suisse bankers following the bank's merger with UBS is facing some major backlash. In a surprising turn of events, the Swiss Federal Administrative Court has ruled that such a decision was unlawful.
In a groundbreaking, or some might say, game-changing "pilot judgment" released on Tuesday, the court sided with 12 former Credit Suisse managers, overturning the government's decision to reduce their bonuses on the basis of a lack of legal authority.
Credit Suisse, which has been plagued by scandals and financial misfortunes, was saved by its rival UBS in a government-orchestrated takeover back in March 2023. Post-merger, around 1,000 senior bankers at Credit Suisse found themselves out of luck, with their bonuses evaporating completely. The executive team, meanwhile, bid farewell to their outstanding variable pay. Managers one level below the executive board watched their bonuses dwindle by 50%, while those two levels below saw a 25% cut.
However, the court has determined that the Federal Department of Finance (FDF) had no right to permanently reduce these payouts after the bank received state aid. The court argued that such a drastic interference with payment entitlements, protected under the Swiss constitution's guarantee of ownership, requires explicit legal authorization, which the court found was absent in this case.
Interestingly, the court concluded that none of the 12 former Credit Suisse employees who initiated the legal challenge had been top managers at the bank. Despite this, their wishes prevailed. However, the ruling may still be challenged at the Federal Supreme Court.
The decision is sure to stir up a hornet's nest, especially given the public's furor over the mismanagement that led to Credit Suisse's downfall. Many view the bank's top leadership as responsible for years of questionable decisions and scandals that ultimately led to its collapse and the government-backed rescue.
UBS, on the other hand, has remained silent on the matter, stating simply that it "takes note of the decision." The FDF, however, has expressed its intention to analyze the ruling and "consider an appeal" to the Supreme Court. The FDF also plans to make decisions in the near future on separate proposals regarding banker accountability and the blocking or retroactive withdrawal of bonuses.
Remuneration in the financial services sector has been a hot-button issue in Switzerland, especially since the demise of Credit Suisse. UBS CEO, Sergio Ermotti, is currently Europe's best-paid bank CEO, pocketing SFr14.9mn ($17.8mn) last year.
UBS is preparing itself for the government to unveil draft legislation on reforms to bank capital rules next month, which the lender has warned could increase its capital requirements by up to $25bn. The regulatory uncertainty has taken a toll on the Swiss bank's share price, leading to Santander ousting UBS as continental Europe's most valuable lender last month.
[1] Source: Swiss Federal Administrative Court decision[3] Source: Switzerandrailway.com's in-depth report on the Credit Suisse matter.
In light of the Swiss Federal Administrative Court's decision, it is clear that the reduction of bonuses for former Credit Suisse bankers, following the bank's merger with UBS, was deemed unlawful due to the Federal Department of Finance's lack of legal authority. This ruling may have significant implications for financial business practices in Switzerland, particularly in the realm of remuneration in the financial services sector.
