Ahead of a contentious shareholder meeting, Credit Suisse is spoiling its shareholders in hopes of placating anger over million-franc bonuses. Will it be enough to avert a leadership crisis? finews.com takes a look.
Zurich-based Credit Suisse has angered a wide swatch of its investor base by granting its chairman, Urs Rohner, and Chief Executive, Tidjane Thiam, millions in bonus pay despite a second consecutive annual loss, billions in fines to settle a U.S. mis-selling investigation, and a sliding stock price.
The duo backed down from initial pay plans – which had been 11.9 million Swiss francs for Thiam and 3.9 million for Rohner – after two influential U.S. advisory groups urged shareholders to reject them.
Rohner Pressured
Rohner has reportedly said he believes the concession is enough to secure a binding «yes» from shareholders, but the threat to his leadership is still very real.
So in order to seal the deal, Credit Suisse is offering shareholders a slew of goodies. Some represent a volte-face from the bank's strategy laid out 19 months ago. All are aimed at making shareholders feel they are getting the same generous treatment that the C-Suite enjoys.
finews.com looks at the goodies:
1. Less Bad Bank
Credit Suisse will run down a unit of its undesirable assets by the end of next year – one year earlier than planned. At 16 percent of the bank's overall risk-weighted assets, the unit continues to hamper profitability. An earlier-than-planned exit without heftier losses than originally planned is good news for shareholders: assets and resources can be assigned elsewhere, ideally to areas which generate revenue.
2. Cash, Not Promises
Credit Suisse has paid so-called scrip dividends for years. Companies short on cash like them: shareholders receive a proportion of new shares relative to what they own instead of precious funds. But the bank's shareholders have grown disillusioned with scrips, not least because Credit Suisse's share price has provided them with little joy in recent years as the bank's strategy has foundered.
That should change from this year: Credit Suisse will start paying all cash again, instead of shares. It is the corporate equivalent of «a bird in the hand is worth two in the bush».
3. Payout Ratio
Unlike crosstown rival UBS, Credit Suisse has never promised a certain payout ratio, and certainly not one linked to a certain strategy. Three months into the year, Credit Suisse has already told shareholders to expect roughly what they got last year – 0.70 francs per share, which they could accept partly in stock.
The move is telling: companies normally hate making dividend promises in the third quarter, much less in spring. To boot, Credit Suisse is promising to lift its payout ratio as the bank becomes more profitable. To be sure, the last two years weren't profitable at all, but as Thiam's strategy for the bank takes shape, this is a juicy promise.
4. Please Sir, Can We Have a Cap Hike?
No doubt about it: nobody wants to tap shareholders for capital twice in 18 months. Credit Suisse has little choice if it wants to fulfil rapidly-approaching capital requirements. A 4 billion franc cash call from investors has been designed that shareholders almost have to pile in: at 10.80 francs per share, the new stock is being sold at a deep discount to the average Credit Suisse share price in recent months.
The measure is meant to keep major shareholders like Qatar, the Saudi-based Olayan Group, and U.S. fund house Harris Associates sweet – the very people whose ire at a renewed cash call would be perilous for Credit Suisse.
5. Swiss U-Turn
Credit Suisse has finally buckled on listing a minority stake in its carved-out Swiss bank unit. It needs the capital, but hopes shareholders will give it 4 billion francs in the May to June exercise (see Point 4). The unit's quality is that it is a valuable and reliable generator of profits, not the high-growth story that would make it «pop» for IPO investors. Listing it looked great on paper, but was always going to be an organizational and logistical nightmare.
Keeping it makes sense for shareholders, and the cash injection from shareholders will still ensure that Credit Suisse is better capitalized, can clean up its non-strategic unit faster and finance growth, such as the more than 2,000 people the bank now employs in compliance and regulatory affairs.
Is It Enough?
All told, will the measures be enough to quell the shareholder revolt? Yes, probably. But as finews.com has previously written, Rohner's credibility with even major institutional holders is shot.
A troubling report that Thiam has threatened to walk if pay isn't approved speaks volumes to the Sopranos-style atmosphere inside Credit Suisse right now.
«We still have a lot of work ahead of us,» Credit Suisse concedes. Rohner and Thiam, whose relationship has reportedly turned frosty, have won a bit more time.
