Fiona Mullaly, Sinyeong Park, Hoang Nam Nguyen,

Arthur Omont, James OSullivan, Claus Michaelis

May 2014

Everything is great...

E. Stanley ONeal (former CEO Merrill Lynch)

$35 million bonus in 2007
superb performance in mortgage business

...until its not

arthur
banks are different from industries in the way
performance is measured. with banks we need
to talk about risk+capital management the
same way we talk about budgeting and costs at
manufacturing firms...

Regulatory pressure (1/2)

CS falls under the jurisdiction of Switzerlands financial authority (FINMA) and
national bank (SNB) as well as European and United States regulators which
have all pushed for stronger internal performance measurement and control.

For overall firm performance monitoring, in Dec. 2010 CS has

implemented Basel III and national regulator recommendations including:
Basel III: Required minimum capital ratios, contingency planning in
case of liquidity crisis, improved value-at-risk and leverage metrics for
the firms trading book
Regulator reporting: in June 2012, SNB recommended CS
accelerate its resilience strengthening program and significantly
increase loss-absorbing capital

Regulatory pressure (2/2)

For performance measurement of staff, regulators have relied on fines

and additional reporting to ensure companies such as CS improve
individual control systems:
Fines: CS to pay upward of $885m to settle with US authorities
regarding the mis-selling of mortgage-backed securities pushing
towards better control systems
Additional reporting: particularly comparing CS to UBS has led to
improved internal controls. This is an industry-wide trend with
regulator disclosures pushing firms to hire greater numbers of
controllers.

Notably, the only person to be imprisoned by the US Dept. of Justice in relation

to the financial crisis was a CS executive, leading to additional scrutiny of the
firm.

Problem Statement

How has performance measurement &

management at Credit Suisse evolved after the
financial crisis?

another slide to introduce nam s part

Pre-crisis
Performance Measurement
Performance largely tied to Earnings and ROE
Capital management simply a metric of Tier 1
capital ratio

CS Q1 2007 Earnings Report

Today
CS Q1 2014 Earnings report - Capital &
Leverage metrics beyond Tier 1 capital ratio

Today
Significant emphasis on Capital, Leverage and
Liquidity Management vis--vis Earnings

Liquidity Management

Working Capital Management

Capital Management

Investment & Budget

Management

Leverage Management

Actual Application at Credit Suisse

Capital, Leverage and Liquidity metrics
across divisions

The rise of RWA

(Risk-Weighted Assets)
- Includes off-balance-sheet
exposures
- Adjusted for different risk
levels of different assets
- Reflects a more accurate
picture of a banks real
balance-sheet

Economic Capital

Sales

Sales (Before Crisis)

Fuck the clients. Youre only responsiblity
is to put meat on the table. [...] Name of the
game: Move the money from your clients
pocket into your pocket
Right, but if you can make the client money
at the same time, it is advantageous for
everyone, correct?
No.

Sales (Before Crisis)

Performance measurement depends on the
total sales volume
Example: CS salespeople receive 5% cut out of
sales commissions generated by them

Sales (After crisis)

Sales (after crisis)

Our employees are assigned performance
objectives that are aligned with the banks
strategy. They are expected to place our clients
at the center of all that they do.
Credit Suisse, 2014

Sales (after crisis)

Performance is measured:
- Sales Volume
- Client Satisfaction (grades by clients)
Additionally:
- delayed bonuses (more LT focus and ethics)

Sales (after crisis)

Delayed bonuses / Claw-back:
- more long-term focus
- incentives for legal and ethical behavior
Example: Some Credit Suisse
employees have to wait until
2021 to receive some bonuses
(can be clawed back)

conclusion/recommendaiton fiona
CS does this and that, should change this and
copy that from bank xyz