Credit Suisse shareholders have been advised to vote against clearing its board and senior management of legal liability last year, with one influential proxy adviser claiming “a lack of oversight and poor stewardship” contributed to the Swiss bank having to rely on government loans and a takeover by UBS.
Institutional Shareholder Services and Glass Lewis, two of the world's largest proxy advisers that advise investors ahead of annual meetings, have recommended that Credit Suisse shareholders should not back a motion to discharge senior executives from legal liability for the 2022 fiscal year.
Despite its shotgun wedding with UBS on 19 March, Credit Suisse's AGM is still scheduled to take place in Zurich on 4 April.
Swiss law allows shareholders to discharge directors and senior executives of liability for the previous financial year at AGMs. Largely seen as a way for shareholders to endorse the board, voting to discharge senior executives mean they cannot be sued by investors in future, unless new information comes to light that wasn’t known at the time.
“A lack of oversight and poor stewardship has contributed to a situation where Credit Suisse needed Swiss government loans and a takeover by UBS... to avoid a full collapse,” ISS said in a report issued to Credit Suisse shareholders, seen by Financial News.
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Credit Suisse said on 15 March that it would take a CHF50bn loan from the Swiss National Bank to “pre-emptively strengthen its liquidity”, after its share price plunged to an all-time low following comments by its largest investor — Saudi National Bank — that it was unable to pump any more money into the Swiss lender.
ISS also pointed to the Credit Suisse board's failure to react to “significant shareholder dissent” at last year's AGM, where investors refused to absolve senior executives over a string of scandals, including its exposure to the collapse of Archegos which saw the bank lose more than $5bn.
Almost 60% of shareholders at last year's AGM failed to discharge board executives from legal liability in 2020, which ISS called a “highly significant result”.
Credit Suisse said following last year's vote that it would “reflect on the feedback from shareholders and consider any further necessary steps”.
However, ISS said the bank “has not provided any specific comments or details on shareholder engagement” following the move by shareholders.
The proxy adviser also pointed to “material weaknesses” Credit Suisse recently identified in its internal reporting controls, after it delayed the release of its annual results at the behest of US regulators.
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“We believe that the board's response to the failed discharge resolution, particularly as inadequate control systems are again a topic this year, is wholly inadequate and shows a serious lack of good governance practice at the board level,” ISS added.
“Furthermore, the continued presence of material weaknesses within the internal control system over financial reporting raises serious concerns for shareholders.”
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Glass Lewis in its report to shareholders said that while the Credit Suisse board and management had undertaken work in the past year to “implement much needed strategic change”, the proxy adviser could not conclude “that the board and management have satisfactorily discharged their duties in the past fiscal year”.
Credit Suisse declined to comment.
The shareholder recommendations come after Credit Suisse and UBS announced a $3.25bn deal on 19 March — the biggest merger between two systemically integral banks since the global financial crisis.
The Swiss National Bank also agreed a $100bn liquidity line as part of the deal, and the Swiss government has also offered UBS a guarantee of CHF9bn to cover any potential losses from the tie-up.
Swiss regulators also changed the country's laws to push through the deal without shareholder approval, a move which angered some investors who claimed it went against corporate governance best practice.
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