Credit Suisse is overhauling its bonus structure for investment bankers and asking them to agree to a new claw-back provision on cash for people that jump ship
Credit Suisse is overhauling its bonus structure for its struggling investment banking and capital markets division, and instituting stiff clawback penalties. Under the new plan, cash bonuses will be paid in the form of an "upfront cash award," which in practice functions like a three-year, interest-free loan. Employees who leave early will have to pay back compensation. The bank, which is set to announce bonuses February 11, is requiring employees to sign an agreement accepting the new terms. The new terms come amid a bombshell announcement on Friday that CEO Tidjane Thiam will leave the firm following a spying scandal. The 2019 bonus pool for the dealmaking unit is expected to fall by as much as 25%, two industry sources told Business Insider Visit Business Insider's homepage for more stories.
Credit Suisse is overhauling its bonus structure for its struggling investment banking and capital markets division, imposing financial penalties that will make it more financially onerous for higher-earning bankers to depart for rivals. The firm on Wednesday finalized a new compensation plan for its dealmaking group, including a provision requiring the cash portion of a bonus to paid in the form of an "upfront cash award" with stiff clawback provisions, according to people familiar with the plans. The new terms come amid a bombshell announcement on Friday that CEO Tidjane Thiam will leave the firm following a spying scandal. Thomas Gottstein, the current head of Credit Suisse's Switzerland division, will take over as CEO. The payment in practice is akin to a three-year, interest-free loan, and bankers who leave or are fired for cause within three years of earning a cash award will have to pay back the remaining term portion based on the pre-tax amount. It doesn't apply to junior investment banking ranks, the sources said. Like most Wall Street firms, Credit Suisse pays its top earners partially in cash and partially in deferred stock that vests over several years — with the highest earners drawing more of their bonus in equity. Under the new plan, which only affects higher earners in the Investment Banking and Capital Markets division, Credit Suisse will pay the cash portion via an upfront cash award, essentially a forgivable loan that vests monthly over the course of 36 months, the people said. For instance, an employee who received a bonus and resigned 12 months later would be required to pay back two-thirds of the awarded money, based on the pre-tax amount. A Credit Suisse spokesman declined to comment. Bonuses, which are considered supplemental income, are taxed at a higher rate in the US than a traditional salary. The stock portion will remain on a three-year vesting schedule. The bank, which is scheduled to communicate 2019 compensation to staff on February 11, is requiring employees to sign an agreement accepting the new terms, or otherwise forego the cash portion of their bonus, the people said. While atypical, a compensation plan with such clawback penalties isn't unprecedented, even within Credit Suisse. The firm last year implemented a similar compensation plan among senior bankers in its Asia-Pacific division. Jefferies is also known to impose stiff clawback provisions on employee compensation. The more restrictive bonus system is the latest blow for Credit Suisse's beleaguered dealmaking division, which has underperformed the rest of the firm. Credit Suisse in 2019 fell to the 7th from 6th on the global investment banking fee league table, as its market share decreased to 3.8% from 4.3%, according to Dealogic. In November, Thiam appointed David Miller as the head of the investment banking and capital markets group, replacing Jim Amine. The Financial Times reported last week that the Swiss bank had frozen its overall bonus pool for the second year running, as gains in sales and trading were offset by lackluster performance in advisory and capital markets. Two industry sources told Business Insider the bonus pool for the dealmaking unit was expected to fall by as much as 25%. Join the conversation about this story » NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.
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HSBC tanks the most since 2017 after announcing a $7.2 billion overhaul charge (HSBC) | Markets Insider
HSBC shares tumbled as much as 5.6% early Tuesday after the bank unveiled its third restructuring...HSBC shares tumbled as much as 5.6% early Tuesday after the bank unveiled its third restructuring plan in a decade. The overhaul looks to cut as many as 35,000 jobs by 2022 as well as halt share buyback programs planned for 2020 and 2021. Restructuring costs are estimated to hit $6 billion, while asset disposal charges will total $1.2 billion through 2022, the bank said. The bank also announced its fourth-quarter earnings on Tuesday, reporting a 33% drop in pre-tax profits year-over-year. Watch HSBC trade live here. HSBC shares fell as much as 5.6% in early Tuesday trading after the bank announced plans to cut 35,000 jobs in a major overhaul. Europe's largest investment bank by market cap looks to slash underperforming offices in the US and Europe and focus on Asia for further growth. HSBC expects to take a $6 billion charge from restructuring and a $1.2 billion charge from asset disposal costs over the next three years. Tuesday's drop on the London Stock Exchange was HSBC's biggest since September 2017, according to Bloomberg. The company posted its fourth-quarter results on Tuesday alongside the overhaul plan. Quarterly revenue and pre-tax earnings landed above analyst estimates, but profits fell 33% from the year-ago quarter. Here are the key numbers: Revenue: $13.1 billion, versus the $13 billion estimate Quarterly pre-tax profit: $4.3 billion, versus the $3.9 billion estimate 2019 pre-tax profit: $22.2 billion, versus the $21.8 billion estimate Total jobs: down to 200,000 by 2022 from 235,000 Share buybacks will be suspended for 2020 and 2021, and gross assets held by the bank will be reduced by $100 billion over the next three years, according to the report. HSBC warned coronavirus fallout will bring additional hits to future performance, but the magnitude of the damage is still unclear. "Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China," the bank said in its latest quarterly report. The bank is going to be "surgical and ruthless" in its plan to cut underperforming businesses, Chief Financial Officer Ewen Stevenson said in a Bloomberg TV interview. HSBC plans to combine its consumer banking and private banking divisions into a standalone platform, while also shrinking its global reporting lines to four from seven. The latest restructuring plan is HSBC's third in a decade, and comes amid a continued search for a permanent CEO. Former chief executive John Flint left the company roughly one year after his 2018 improvement plan failed. Chairman Mark Tucker now leads the plan to cut costs and capitalize on Asian and Middle Eastern markets while also looking to fill the bank's top role. HSBC traded at $35.82 per share as of 12 p.m. ET Tuesday, down 8% year-to-date. Now read more markets coverage from Markets Insider and Business Insider: Apple sees $45 billion in market value wiped out after warning the coronavirus will push revenue below forecasts China will start destroying cash collected in areas with high exposure to the coronavirus The HR chief at a $12 billion cybersecurity company says the best person for the job isn't always the most qualified. Here's why more execs are adopting the same mindset. Join the conversation about this story » NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption
These are the 5 biggest bombshells from The New York Times' report on Trump's money and Deutsche Bank
A new report from The New York Times' David Enrich highlights dubious dealmaking and questionable partnerships...A new report from The New York Times' David Enrich highlights dubious dealmaking and questionable partnerships between President Donald Trump and Deutsche Bank. While numerous banks viewed Trump's past bankruptcies as a sign to steer clear of the real estate mogul, Deutsche Bank used him and his businesses to rapidly ascend the financial sector. The Times report details how Deutsche Bank gave Trump special treatment over several years, and how the millionaire leveraged the partnership to secure unorthodox credit lines. Here are the five biggest bombshells from the report, from Trump flying bankers in his private jet to the bank holding years of hidden tax returns. Visit the Business Insider homepage for more stories. President Donald Trump's relationship with Deutsche Bank has fallen under public and regulatory scrutiny since his first months in office, and a new report from The New York Times offers new insights into the unorthodox partnership. Times reporter David Enrich, who spent the last two years interviewing Deutsche Bank executives about the firm's relationship with Trump, gleaning a mix of revealing anecdotes and riveting details, revealed how some employees viewed Trump as a boon for the growing company, while others look back on their business with the real estate mogul with "a mixture of anger and regret." For Trump, Deutsche Bank fueled numerous risky loans and allowed him to continue expanding his business empire after a number of major bankruptcies. The Times' report details how working with Trump helped establish Deutsche Bank as a maverick among financial institutions, willing to do business with people other banks wouldn't touch. Here are the five biggest bombshells from the early February report, from Trump's cozying up with bank staff to a questionable method for obtaining new loans.Trump's tax returns Democrats have been on the hunt for Trump's tax returns for years, as the documents would answer numerous questions about Trump's financial situation, alleged tax fraud, and hush-money payments made during the 2016 presidential campaign. The president has swiftly fought to keep his returns hidden through litigation and charged public statements. As a main lender for Trump's multimillion-dollar real estate projects, Deutsche Bank enjoyed special access to the president's returns as they weighed the risk of opening a line of credit. Executives at the firm told Enrich that Deutsche Bank either has or has had portions of Trump's personal tax returns going as far back as 2011, revealing where new information on the president's finances could turn up. In 2018, House representatives subpoenaed Deutsche Bank for Trump's returns after Democrats took back the chamber. The Trump family responded by suing the bank, aiming to block the documents' release. Two federal courts have since ruled against Trump, and the Supreme Court is set to hear arguments for the case in the spring. The subsequent ruling could set a new precedent for financial privacy and lead Deutsche Bank to reveal more about its secretive dealings with Trump and his businesses. Same bank, different teams Trump's relationship with Deutsche Bank soured in the aftermath of the financial crisis. The business giant sued the firm to avoid paying back a $334 million loan for his Chicago skyscraper. Deutsche Bank sued back, claiming Trump still owed the $40 million he promised to pay in 2005. The debacle was settled in 2010, and the bank agreed to give Trump two years to pay the $40 million sum. The spat led the bank to avoid further business with Trump, but their separation didn't last long. The real estate mogul was struggling to find a new bank to finance his projects, and in his desperation to secure new credit, Trump got away with an extremely risky deal. During a 2011 meeting with a highly successful member of Deutsche Bank's new private banking division, Trump asked for a new loan. He wanted to pay off one of his Deutsche Bank loans with new credit from a separate division, according to The Times. Even after pushback from the bank's executives, the firm's lawyers approved the deal and Trump discovered a new door into the bank's lending services. He later used Deutsche Bank's private banking division to finance his purchase of the Doral Resort & Spa, as well as his failed bid for the Buffalo Bills football team. The partnership ended in the run-up to the 2016 election, but the conflict within Deutsche Bank reveals its appetite for risk when working with Trump. Favors Trump made sure to reward the bankers lending him hundreds of millions of dollars. After the German firm sold more than $400 million worth of junk bonds to fund Trump Hotels & Resorts, Trump "repaid the Deutsche Bank team with a weekend trip to his Mar-a-Lago resort." When teams fell out of favor with Trump over lawsuits, unpaid loans, or heightened risks, the businessman turned to a new desk at Deutsche Bank for funding. After the junk bond sale, Trump looked to the firm's commercial real estate division to finance his Chicago tower. He reportedly flew the bankers, who included the son of Supreme Court Justice Anthony Kennedy, in the same Boeing jet that he used to send the other team to Florida. Trump then invited the bankers to Trump Tower, showered them in praise, and noted that Ivanka would lead the Chicago project, according to The Times. The deal went through. 'Special purpose vehicles' Beyond massive loans and dubious partnerships across divisions, Deutsche Bank offered Trump unique instruments for keeping his financial information hidden from regulators and placing risk of default on outside investors. The firm created several "special purpose vehicles" for the millionaire to "quietly and inexpensively acquire international properties," The Times reported. The tools allowed Trump to use other investors' capital to make deals in Eastern Europe and South America, effectively using cash from other Deutsche Bank clients to cover his side of a purchase. The firm also sold stakes in Trump properties to other clients, giving investors the chance to profit off successful Trump ventures. The millionaire was able to make huge purchases without putting any of his own money down. While fruitful in the short term, the special instruments gave Deutsche Bank and its clients outsized exposure to Trump's businesses and their chance of falling below profit expectations. Inflated worth Trump frequently used "goodwill" claims to back up his loans, promising that his sizable net worth was enough to guarantee repayment for massive credit lines. Yet, the Times' story reveals how Trump's stated net worth landed far higher than what his finances showed. While applying for the Chicago tower loan, Trump told the bank he was worth more than $3 billion, using the lofty figure to support his claim that he'd easily repay the borrowed sum. A Deutsche Bank study of Trump's finances found he was worth about $788 million, according to The Times. While the incorrect claim would typically disqualify a loan application, Deutsche Bank pushed forward and loaned Trump $640 million for the project. Later, when the millionaire was looking to secure his first loan through Deutsche Bank's private banking division, Trump grossly overestimated the value of several assets to pad his net worth. Bankers found Trump's financial records claimed the property he bought in Westchester County for $7 million was then worth $291 million. After the bankers' full review, Deutsche Bank lowered Trump's asset values by as much as 70%, The Times reported. Now read more markets coverage from Markets Insider and Business Insider: An inside look at the debate around pandemic bonds, which have $425 million hinging on how deadly the coronavirus ends up being California wildfire victims could become PG&E's biggest shareholders after a settlement — and assume the financial risk of future fires The former Apple engineer who created the programming language Swift has joined AI chip startup SiFive. Here's what he learned working at Apple, Tesla, and Google.
The attorney general suggested that one way of opposing the Chinese tech giant Huawei would be...The attorney general suggested that one way of opposing the Chinese tech giant Huawei would be for the U.S. to invest in a European rival.