Neat. Eat your own cooking.
Credit Suisse Group AG’s investment bank has found a new way to reduce the risk of losses from about $5 billion of its most illiquid loans and bonds: using them to pay employees’ year-end bonuses.
The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said.
The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland’s second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.
Credit Suisse to Use $5 Billion of Illiquid Assets for Bonuses
These guys are lucky JUST TO CONTINUE TO BE EMPLOYED. Hmmph!
“Bonuses will take the first hit should the securities decline further in value”.I’m sure enough of these guys to not believe such statements anymore.It’s a convenient ploy to take bonuses home while appearing to improve accountability at the same time.As always,the devil is in the details,and we are sorely short on those.
So basically insiders skinned the shareholders on the way in ( when they loaded up the balance sheet ) and on the way out ( by valuing the assets low enough so to create profits with a good probability)
And people think that this is good thing and they way forward; how gullible!
65% off face value according to the FT:
“People close to the situation said the assets had been marked down heavily, to an average of 65 per cent of their original value, making it likely they would appreciate in value as credit markets thaw during the next few years.”
Credit Suisse ties pay to illiquid assets
Does anyone really think they salted their bonus pool with valuations they didn’t expect to increase dramatically…
Good thinking. Perhaps I can make my next mortgage payment with Madoff certificates.
This would make everyone interested in underwriting quality, even those in unrelated departments.
Nice idea. It was always wrong to pay current bonuses on pools & deals with uncertain future value. In some realms, as in certain pension fund real estate investment operations, the dealmakers would vest in an equity pool because that was believed to align their incentives with the fund’s. We have seen the problem with bonuses paid on deals that then generate massive losses.
We talk about ways to prevent bubbles. One would be a mandatory insurance pool, like the FDIC, but another would be to de-couple bonuses from the present. The number of iffy deals would drop and the people in the pool would police their own because they would suffer if colleagues became pigs.
It looks like a kind of simple CDO structure like the ones the Fed and the SNB are using for Bear, AIG, UBS toxic assets etc…, the “executives’ bonus” are the first tranche i.e equity , the bank is funding and would take losses in excess of the first tranche, I am simplifying but you get the idea.
But what marks are they using on the assets?
Will they cherry-pick the better ones?
If losses happen , who will pay for them? ( The liability to the employees will be non cash for five years, so who funds the losses as they happen?)
Why CS offers leverage to the investments of the employees? Could this end in people having to pay CS money?
Sounds good in paper , but how will it work in practice?