Sources said that the bank, which trimmed its bonus pool for 2009 to alleviate the cost of the UK government’s 50 per cent tax on bonuses, feels it needs to make the awards in order to remain competitive in the UK.
One City source told City A.M. last night: “After the reduction in the bonus pool last year, it was obvious that the bank needed to act sooner rather than later this year in order to reward and hang on to its top talent.” Normally bonuses would be paid closer to the end of the calendar year.
Managing directors in the UK were notified last week about the payments, which will be deferred over three years and will be subject to clawback provisions as well as tied to the bank’s return on equity performance. “This is not like getting cash in the bag now,” said a source with knowledge of the awards.
Credit Suisse’s corporate finance team, headed up by Sebastian Grigg and James Leigh Pemberton, is one of the strongest in the City, even though it did suffer a very public setback earlier this year when it advised the Prudential on its aborted takeover of AIA. Despite the Prudential disappointment, the likes of Grigg and Leigh Pemberton nevertheless remain hot properties who could easily move to rival banks.
After its decision to reduce bonus payments last year, Credit Suisse paid $436m (£282m) for the UK bonus tax. Among New York-based firms, Goldman Sachs paid $600m and JPMorgan Chase $550m.
An outbreak of bonus awards and any evidence of especially conspicuous consumption by bankers could raise the temperature politically, since the coalition government’s new bank levy is unlikely to raise as much revenue as the previous government’s one-off bank bonus tax.
When the IFS last week criticised the government’s recent budget, saying it would hit the poorest the hardest, Labour leadership candidate David Miliband, who is the most pro-City of five contenders, weighed in by saying the budget had been “hard on the poor and easy on the bankers”.
Chancellor George Osborne told City A.M. in an interview ahead of the election: “The levels of pay in finance have got completely out of kilter with the rest of society. So you have a heart surgeon that is paid a 30th or 40th of what someone is paid at the top of financial services. That is quite difficult to justify when you have an implicit state guarantee as you do in the banking sector.”
On the other hand the investment banks will argue that their new awards take on board fully the new disciplines that were imposed as a consequence of the financial crash.
Earlier this summer Credit Suisse said its second-quarter profits had risen one per cent year-on-year, but were down 22 per cent on the first three months of this year.