From Bloomberg. Based on what I’ve read, this seems like a great idea overall. Curious to hear everyone else’s thoughts on this.
Wire: BLOOMBERG News (BN) Date: 2008-12-18 16:34:13
Credit Suisse to Use Illiquid Assets to Pay Bonuses (Update1)
(Adds analyst’s comments from fifth paragraph.)
By Christine Harper
Dec. 18 (Bloomberg) – 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 new policy applies only to managing directors and
directors, the two most senior ranks at the Zurich-based company,
according to a memo sent to employees today.
“While the solution we have come up with may not be ideal
for everyone, we believe it strikes the appropriate balance among
the interests of our employees, shareholders and regulators and
helps position us well for 2009,” Chief Executive Officer Brady
Dougan and Paul Calello, CEO of the investment bank, said in the
memo.
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.
“It’s monstrously clever,” said Dirk Hoffman-Becking, an
analyst at Sanford C. Bernstein Ltd. in London who has a “market
perform” rating on Credit Suisse stock. “From a shareholders’
perspective it’s great because you’ve got rid of some of the
assets and regulators will be pleased because you’ve organized a
risk transfer.”
‘Better Than Nothing’
For employees, “there’s some upside in there and if the
alternative is nothing, it’s a lot better than nothing,”
Hoffman-Becking said.
Credit Suisse said earlier this month it would eliminate
5,300 jobs and cancel bonuses for top executives after it had
about 3 billion Swiss francs ($2.8 billion) of losses in October
and November. Unlike larger Swiss rival UBS AG, Credit Suisse
hasn’t received a government rescue. Banks and securities firms
are struggling to pay employee bonuses after taking more than
$800 billion of losses on mortgages and corporate loans.
Writedowns on leveraged finance commitments at Credit Suisse
have amounted to 3.5 billion francs since the beginning of the
crisis, while the bank marked down its commercial mortgage
holdings by 2.9 billion francs.
Outside Investors
Credit Suisse is the first to use the debt to pay employees.
Outside investors may also be permitted to invest in the
facility, according to the people familiar with the matter, who
declined to be identified because the plan hasn’t been made
public. The bank will boost the potential for returns by
providing leverage to the facility, and will be paid back first,
according to the people.
Leveraged-loan commitments on Credit Suisse’s books fell to
between 2.5 billion Swiss francs and 3 billion francs by the end
of November from 11.9 billion francs at the end of September,
Dougan said on a conference call on Dec. 4. He said the bank had
also “somewhat reduced” its commercial real estate positions.
Credit Suisse had 12.8 billion francs in commercial mortgages at
the end of September.
Assets in the facility will remain on Credit Suisse’s
balance sheet and will be held in the company’s fund management
division, the people familiar with the plan said. The new
structure will mean that any mark-to-market losses or gains on
the assets will be offset by identical gains, or losses, on the
bank’s liability to employees.
Coupon Payments
Employees will receive semi-annual coupon payments on their
investment in the Partner Asset Facility at the London Interbank
Offered Rate plus 2.50 percentage points. The ultimate value of
the facility will be determined over the next eight years as the
loans and securities mature or default, the people said.
“Cash payments representing distributions of a portion of
the award may be made to participants in the future contingent on
the performance of the underlying assets,” Dougan and Calello
said in the memo. “Cash distributions will not be made for
several years.”
The bank said it expects to begin annual payments after five
years.
While Credit Suisse doesn’t say how many managing directors
and directors work at the investment bank, the number is in the
thousands.
Credit Suisse said it will also change the cash portion of
bonuses for all of the bank’s managing directors and for
directors in the investment bank. Under the new system, the bank
will have the right to recoup some of the cash bonus in the two
years after it’s paid if an employee resigns.
*T
For Related News:
On Credit Suisse and pay: CSGN VX TCNI PAY
Credit Suisse and real estate: CSGN VX TCNI REL
Top finance news: FTOP
*T
–With reporting by Elena Logutenkova in Zurich. Editor: Steve
Dickson, Gregory Mott.
To contact the reporter on this story:
Christine Harper in New York at +1-212-617-5983 or
[email protected].
To contact the editor responsible for this story:
Otis Bilodeau at +1-212-617-3921 or [email protected].
[TAGINFO]
CSGN VX CN
NI BNK
NI SCR
NI FIN
NI US
NI NY
NI PAY
NI SWISS
NI EUROP
NI LBO
NI CMBS
NI MBS
NI HY
NI ANON
#<610635.4371757.1.1.18.23097.25>#
-0- Dec/18/2008 16:34 GMT
—————————–====================——————————
Copyright (c) 2008, Bloomberg, L. P.
################################ END OF STORY 1 ##############################
Wire: BLOOMBERG News (BN) Date: 2008-12-18 16:34:13
Credit Suisse to Use Illiquid Assets to Pay Bonuses (Update1)
(Adds analyst’s comments from fifth paragraph.)
By Christine Harper
Dec. 18 (Bloomberg) – 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 new policy applies only to managing directors and
directors, the two most senior ranks at the Zurich-based company,
according to a memo sent to employees today.
“While the solution we have come up with may not be ideal
for everyone, we believe it strikes the appropriate balance among
the interests of our employees, shareholders and regulators and
helps position us well for 2009,” Chief Executive Officer Brady
Dougan and Paul Calello, CEO of the investment bank, said in the
memo.
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.
“It’s monstrously clever,” said Dirk Hoffman-Becking, an
analyst at Sanford C. Bernstein Ltd. in London who has a “market
perform” rating on Credit Suisse stock. “From a shareholders’
perspective it’s great because you’ve got rid of some of the
assets and regulators will be pleased because you’ve organized a
risk transfer.”
‘Better Than Nothing’
For employees, “there’s some upside in there and if the
alternative is nothing, it’s a lot better than nothing,”
Hoffman-Becking said.
Credit Suisse said earlier this month it would eliminate
5,300 jobs and cancel bonuses for top executives after it had
about 3 billion Swiss francs ($2.8 billion) of losses in October
and November. Unlike larger Swiss rival UBS AG, Credit Suisse
hasn’t received a government rescue. Banks and securities firms
are struggling to pay employee bonuses after taking more than
$800 billion of losses on mortgages and corporate loans.
Writedowns on leveraged finance commitments at Credit Suisse
have amounted to 3.5 billion francs since the beginning of the
crisis, while the bank marked down its commercial mortgage
holdings by 2.9 billion francs.
Outside Investors
Credit Suisse is the first to use the debt to pay employees.
Outside investors may also be permitted to invest in the
facility, according to the people familiar with the matter, who
declined to be identified because the plan hasn’t been made
public. The bank will boost the potential for returns by
providing leverage to the facility, and will be paid back first,
according to the people.
Leveraged-loan commitments on Credit Suisse’s books fell to
between 2.5 billion Swiss francs and 3 billion francs by the end
of November from 11.9 billion francs at the end of September,
Dougan said on a conference call on Dec. 4. He said the bank had
also “somewhat reduced” its commercial real estate positions.
Credit Suisse had 12.8 billion francs in commercial mortgages at
the end of September.
Assets in the facility will remain on Credit Suisse’s
balance sheet and will be held in the company’s fund management
division, the people familiar with the plan said. The new
structure will mean that any mark-to-market losses or gains on
the assets will be offset by identical gains, or losses, on the
bank’s liability to employees.
Coupon Payments
Employees will receive semi-annual coupon payments on their
investment in the Partner Asset Facility at the London Interbank
Offered Rate plus 2.50 percentage points. The ultimate value of
the facility will be determined over the next eight years as the
loans and securities mature or default, the people said.
“Cash payments representing distributions of a portion of
the award may be made to participants in the future contingent on
the performance of the underlying assets,” Dougan and Calello
said in the memo. “Cash distributions will not be made for
several years.”
The bank said it expects to begin annual payments after five
years.
While Credit Suisse doesn’t say how many managing directors
and directors work at the investment bank, the number is in the
thousands.
Credit Suisse said it will also change the cash portion of
bonuses for all of the bank’s managing directors and for
directors in the investment bank. Under the new system, the bank
will have the right to recoup some of the cash bonus in the two
years after it’s paid if an employee resigns.
*T
For Related News:
On Credit Suisse and pay: CSGN VX TCNI PAY
Credit Suisse and real estate: CSGN VX TCNI REL
Top finance news: FTOP
*T
–With reporting by Elena Logutenkova in Zurich. Editor: Steve
Dickson, Gregory Mott.
To contact the reporter on this story:
Christine Harper in New York at +1-212-617-5983 or
[email protected].
To contact the editor responsible for this story:
Otis Bilodeau at +1-212-617-3921 or [email protected].
[TAGINFO]
CSGN VX CN
NI BNK
NI SCR
NI FIN
NI US
NI NY
NI PAY
NI SWISS
NI EUROP
NI LBO
NI CMBS
NI MBS
NI HY
NI ANON
#<610635.4371757.1.1.18.23097.25>#
-0- Dec/18/2008 16:34 GMT
—————————–====================——————————
Copyright (c) 2008, Bloomberg, L. P.
################################ END OF STORY 1 ##############################