Top Bank Execs get bad debt as bonuses

[The Dude]

http://www.bloomberg.com/apps/news?pid=20601087&sid=auEEfFRNdqcs&refer=home
Dec. 18 (Bloomberg) -- Credit Suisse Group AG (http://www.bloomberg.com/apps/quote?ticker=CSGN%3AVX)’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 (http://www.bloomberg.com/apps/quote?ticker=CSGN%3AVX) 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 (http://search.bloomberg.com/search?q=Brady%0ADougan&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) and Paul Calello (http://search.bloomberg.com/search?q=Paul+Calello&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), 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.”


seems to me they're making the best out of shitty situation (from an outsider's perspective)...I like it.

[BIG PIZZLE]

This is a good idea.

[TylerDurden]

hopefully this will be a lead-by-example type of thing in which other banks follow suit... but i doubt it.

[Swurgen]

Just do whatever has to be done to make sure those people's bonuses are paid and they are rewarded for leading their company to the top in 08!

[vasili denisov]

It's going to have to be voluntary, since any executive pay limits mandated by the bailout are now toothless anyway.
Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/14/AR2008121402670_pf.html

[Debo]

Just do whatever has to be done to make sure those people's bonuses are paid and they are rewarded for leading their company to the top in 08!

You really are a dumb shit. This is pure genius. The banks are unloading these securities (which they probably own at par, while they are now probably worth half of that) onto their employees instead of selling them for half price in the open market.

This provides them with two benefits: 1.) They are ridding their BS of shit debt that it killing their capital ratios and 2.) They found a way to give their people something to keep them from jumping ship when things turn around.

Not everyone that works at a bank lead their company into the ground as you claim. The top gives the orders and they execute them.

I am not even going to go on a tirade about the Fed. I doubt that you know or care about their role in the economy.

[Swurgen]

And you can eat shit. All I keep hearing is about making sure all the financial swindlers get their bonus taken care of with little to no outrage on here in this or any other post as opposed to all the venom in the UAW threads. Just wondering if the guys who actually broke the laws to make an extra million were ever going to get the same criticisms as the guys who made no millions and just tried to do the best they could for themselves based on negotiating with their bosses.

[Phil Theehor]

This is fucking brilliant (non-ironic). I am blown away by the beauty and simplicity of this solution.

You can look at this from every angle and all you see are wins.

Swurgen, stop badgering Debo. He's smart. Serve your poo to someone else if you want it eaten.

[Debo]

And you can eat shit. All I keep hearing is about making sure all the financial swindlers get their bonus taken care of with little to no outrage on here in this or any other post as opposed to all the venom in the UAW threads. Just wondering if the guys who actually broke the laws to make an extra million were ever going to get the same criticisms as the guys who made no millions and just tried to do the best they could for themselves based on negotiating with their bosses.

What laws did the banks execs allegedly break?

This plan is pure genius. I don't think that I can say that enough.