Credit Suisse to Use Illiquid Assets to Pay (executive) Bonuses

Source: Bloomberg

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.

Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=auEEfFRNdqcs&refer=home

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An eye-catching idea if ever we saw one - make IB directors eat what they’ve cooked.

handing out the keys to the foreclosed homes in their inventory.

As bonuses to executives.

Peoples homes in major urban centers will now be concentrated in the hands of these executives.

This is a land grab. Pure and simple.

Of course, they have ALWAYS been doing that (transferring wealth to them). But before there was the veneer of seemliness about it. Now, the executives are just being naked about it.

Why not go all the way?

For their "bonus", the executive must go to the foreclosed home and evict the previous owners.

Would save all of the trouble of having to hire others to do that for them.

They do noting but get a cort order...the sheriff goes out and evicts
they never get there hands dirty nor have to confront the people who's lives are ruined by it.

bonus... and bring their children with them so they can see what kind of people their dad or mom really is... maybe then they would elect NOT to take the bonus this year. Maybe.

I mean, those mortgage debts are already held by someone, i.e. the bank, presumably mixed in with other debt securities-- what difference does yet another transfer of ownership make to the home buyers? Their terms are already fixed, I assume.

Kicking out the home owners is not a reasonable way for the bonusees to liquify those assets-- that just sticks them with real estate to move, likely spread out all over the place, not consolidated into one or a few markets, etc. No, I'll bet the best way to liquify their "bonus" will be to sell their securities to someone else.

...and it is easier for an individual to sell a few hundred thousand dollars of this crap (from a bonus or something) than for the bank to move alllllll of the crap at once. By being spread amongst a few thousand people all trying to sell at different times (or not trying to sell) it is easier for it to be sold in an orderly fashion. When CS has $5B worth of crap on its books and it tries to sell any piece of it - and let us say it is marked at 85 cents on the dollar - then potential buyers immediatelty bid them 70 cents because they know there is a lot more selling behind it. This gaming the market is a lot of the reason why the credit market has imploded. Nobody wants to buy until the last distressed seller is done...so therefore nobody wants to buy....and the marks keep going lower and lower.

I want them to understand the true cost of those bonuses.

This is the NUMBER ONE FORECLOSURE Mill in the world. They are getting Small Sub-prime Properties that they have purposely and deliberately forced into foreclosure by not properly posting Payments on Time, and creating Late Payment & Fee generating scenarios. This is the Root of the foreclosure fiasco. They prey on Persons not financially able to legally defend themselves, and the Servicer gets to extract all of their illegal fees at the time of the property Auction. They always get their money, because of this. This is theft at the highest level. Go on the web and Look Up Fairbanks Capital, if you don't believe this. You will get an Eyeful. This Scam tracks back for over the last 8-9 years. Credit Suisse bought Fairbanks Capital from PMI a few years back, It had an SEC Lawsuit against it, and they merely changed their name & ownership, to escape the consequences, and Still to this day, pulls the same Level of bullshit against its customers... I think this is rewards to these execs for very bad behavior....
Regards, Bobalew

...in the cesspool they've created. :rofl:

Of course, if the value of those toxic assets does not decline, might that encourage or justify the continuation of similar, risky practices? And one other thing-- how does one cash in on those bonuses? When one exec takes out their share, does that increase the risk borne by those left in the pool? Is it even possible to realize a liquid cash-out from such a "bonus" pool?

Anyway, I think this is a hoot!

I think it is a great idea...they may even get lucky too...it could appreciate in value if this mess gets sorted. Some of that stuff that is marked to market at such horrific levels should be worth more than they are. Cashing out is clearly a harder thing to do and I am not sure how that is set up. It may not be so hard though - for example a leverage loan such as one made to Clear Channel for its LBO could be sold in the market with an amount from an individual easily - it is just hard to sell the billions of dollars worth of the crap that the bank has on its sheets all at once at a reasonable price. Another good thing is that it removes some of the toxic crap from the company's balance sheet. Plus, a lot of those execs already have stock from previous bonuses that can go up by removing the toxic shit from the balance sheets. The other good thing is that by not paying in the form of stock, there is less dilution to current shareholders from the issuance of shares come bonus time!

Very interesting move.

I always value your inside insight.

...was incredible...the highlight was probably ice climbing in front of Cerro Torre near El Chalten, Argentina...but Torres Del Paine National Park in Chile and sailing the Beagle Channel near Ushuaia was great as well!

http://en.wikipedia.org/wiki/Cerro_Torre Cerro Torre
http://en.wikipedia.org/wiki/Torres_del_Paine_National_Park Torres Del Paine
http://en.wikipedia.org/wiki/Beagle_Channel Beagle Channel

...i.e. cashing out by selling your share of those assets to someone else at a mutually agreed upon price-- IF a buyer can be found, of course. Hmmm, all sorts of incentive possibilities there, perhaps. And you're right-- the bank gets those assets off their books.

Is make it impossible for them to walk away from the mess. It even forces them to work toward making the toxic goo non-poisonous.

What can you do with bad mortgages in a depression? Not a lot. And aren't there property taxes to be paid, as well?

Would you, if you were used to receiving $32-odd million a year in bonuses, like to get it in mortgages of houses that are about to be abandoned? Empty houses are prey to squatters, vandals, and infestation.

I'm kinda dazzled by the snarky, pissed-off viciousness of these bonuses.

Is it used as in: Liquid and the opposite, Illiquid?

Like a lot of what is going on, I'm left to wonder.

It just sounds illegal as heck.

one of the guys on his panel a choice between Credit Suisse illiquid shares and a fruitcake for his birthday gift.

The guy picked the fruitcake without hesitation.

He's a pro.

I will sell the guy fruitcakes and buy any leverage loans in exchange.

seriously though, for an exec who thought he would get almost no bonus, this is a far better alternative.

a flying fig, Lucky. The erosion of confidence is massive... and continuing.

I sincerely hope the positive thinkers turn out to be more right than the doom & gloomers.

Merry Christmas to all.

Will they have to realize the bonus at what price for taxation purposes? Or will it be shares in the pool (which sounds like a good bank / bad bank split without the regulators helping)? If shares, then no hit for income taxes like cash unless it's counted as phantom income. But that's what accountants are paid to worry about.

I think it's an interesting idea. If they let in outsiders it's in reality a hedge fund then.

Innovation tis thy name. :)

First time I heard the word was out of Paulson's mouth and was not surprised that someone would coin the perfect gov't-speak word. :rofl:

:shrug:

Examples:

Your money market fund is liquid.
Your house is illiquid, as in, it is hard to convert to cash at a reasonable price quickly.

Executives who's collective decision making that ran the economy into the ground deserve pink slips, not bonuses.

most part...I can't say with certainty that a loser will not get paid, but there are a lot of winners who will take a "sick" day while getting recruited elsewhere (it can be done in this economy - yes) if they get no bonus in spite of making the bank a lot of money.