Hefty bank profits resulting from higher interest rates are increasingly facing criticism. Switzerland's largest state bank is seemingly trying to defuse the situation with a bonus cap, as finews.com discovered.

Switzerland hasn't yet gone so far as Italy, where Prime Minister Georgia Meloni wanted to impose a windfall tax on the hefty profits the banking industry is reaping thanks to the turnaround in interest rates. With the idea of a special profit tax, she sent shock waves through the European banking landscape in August, with the aftershocks felt in Switzerland.

Cantonal Banks Accused of Being Rip-Offs

The high profits that Swiss banks are making thanks to fatter margins in the interest differential business and higher interest on their Swiss National Bank deposits are giving rise to such talk.

Accusations of «rip-offs» have been voiced against the cantonal banks, which often have additional state guarantees. That's unlikely to die down since they are seen posting excellent results this year.

Zuercher Kantonalbank (ZKB), now the third-largest Swiss bank, announced on Friday it will cap bonuses «in view of the good half-year results.»

More Bonus Shares Blocked

«The Bank Council heard the voices from the Cantonal Council and politicians,» said chairman Joerg Mueller-Ganz. In doing so, the politically elected Bank Council pushed through the adjustments to the compensation system for general management members and those with key positions in the bank. ZKB is also directly accountable to the Zurich cantonal parliament, unlike other cantonal banks.

Even before the full-year results are available, the bank's management is learning it won't be able to share in its profits to the same extent as before. In addition to the bonus cap, more significant portions of variable compensation will remain blocked for longer. For members of the General Management, this affects 50 instead of 25 percent of special distributions. For managers in key positions, 30 percent of bonuses will be blocked for longer.

Less is Still Probably More

It's been reported that ZKB is retaining 6 percent of each special bonus as a safety measure for leaner times. This deduction appears to be similar to a windfall tax.

Because fixed salary components are being increased simultaneously, ZKB directors will likely earn more than last year, even if profits are higher. This will probably give rise to further discussion when it reports the exact salary totals.

Collaboration: York Runne