Credit Suisse Slashed Bonus Accruals to Limit Archegos Impact

by 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 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.

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