Swiss proxy firm Ethos advises against pay report and board approval at UBS and Credit Suisse

Banking giants’ propose higher bonuses amid litigation provisions

Ethos, the pension fund-backed Swiss proxy firm, has recommended that shareholders in UBS and Credit Suisse vote against ‘discharging’ the banks’ boards – that’s to say approving their activities in the past year – over the discrepancy between higher bonuses and higher provisions for litigation.

UBS will hold its annual general meeting (AGM) in Basle on May 7 and Credit Suisse two days later in Zurich. In a statement, Ethos said that during 2013, UBS had booked new litigation provisions of CHF1.8bn (€1.47bn). The figure at Credit Suisse was even higher at CHF2.1bn.

Both UBS and Credit Suisse have faced huge legal trouble in past years. Just last month, Swiss anti-trust regulators opened a probe to determine whether traders at the banks manipulated currency rates. Credit Suisse also is being investigated by a New York regulator to see whether the bank helped US citizens avoid US tax. “All this demonstrates that the two boards of directors have difficulty controlling the banks’ operations,” said Ethos.

Despite this, Ethos said the banks meant to raise bonuses to management and employees for 2013. UBS suggests paying out CHF3.2bn, or 28% more than in 2012, and Credit Suisse CHF3.6bn, which is 6% more than in 2012. In particular, the “risk takers” at the banks – 550 managers at UBS and 500 at Credit Suisse –would receive average pay of CHF1.9m and CHF2.6bn, respectively, with 80% of those amounts paid out as a bonus.

Ethos said that in light of all this, it was urging shareholders to oppose both the remuneration report from the banks and board discharge. Ethos is backed by more than 100 Swiss pension funds and foundations. In response, UBS and Credit Suisse declined to comment on Ethos’ recommendation. “We are aware that proxy firms like Ethos publicise their voting recommendations, but it is our policy not to comment on them,” said a UBS spokeswoman.

While it is also recommending that shareholders vote against the banks’ remuneration reports for 2013, ZCapital, a Swiss corporate governance research firm and asset manager, is endorsing board discharge.

Gregor Greber, chief executive of ZCapital, sees the bonus and discharge issues separately. “We actually believe it is a positive thing that those boards are trying to come to terms with the past which is reflected in the decision to increase their reserves for legal action,” Greber told Responsible Investor.

He added: “If an investor wants to send a signal against abuse by voting against board discharge, we believe this should be done before those abuses occur.”