Bonus? Sure! How about some of this toxic paper?
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.
Oh, Credit Suisse, I think I love you.
Credit Suisse to Use $5 Billion of Illiquid Assets for Bonuses [Bloomberg]
Posted by guest , Dec 18, 2008 10:43AM
I think this is a great solution ........... I wish all banks did this. I almost threw up this morning when I saw that Goldman used tax dollars for the bonus pool.
And truthfully, there must be some heavily distressed stuff in there that will eventually increase in value. Some partners may do well.
Posted by guest , Dec 18, 2008 10:44AM
Now that's called eating your own kuchen ...
Posted by guest , Dec 18, 2008 10:44AM
Nice. Two birds with one stone - get rid of toxic stuff on your balance sheet and teach the guys who got you into trouble a lesson. Maybe this should be the benchmark compensation scheme.
Posted by VOL IS KING , Dec 18, 2008 10:45AM
AWESOME.
Posted by guest , Dec 18, 2008 10:47AM
you guys are naive. this is the bottom. if their personal money is at stake, they'll find a way to give it value!
Posted by guest , Dec 18, 2008 10:48AM
My respect for the Swiss goes up a smidgen after this. Novel compensation scheme indeed. Who's next to emulate this act of evil financial genius?
Posted by guest , Dec 18, 2008 10:50AM
Wall Street always wins. Just remember that.
It's even better because CS is going to lever it up. Do you need any better indicator that this stuff is woefully undervalued?
You can bet that whatever goes into this fund is going to be the stuff with the biggest mispricing.
With the leverage and mispricing, five years from now we'll be talking about how this was a ten-bagger and how Wall St executives took advantage of the poor shareholders with their mark-to-market accounting.
Posted by VOL IS KING , Dec 18, 2008 10:51AM
They better be putting that shit in there at par.
Posted by guest , Dec 18, 2008 10:52AM
I am having a ham and swiss sandwhich for lunch in honor of the Swiss and to damn Madoff.
Posted by guest , Dec 18, 2008 10:55AM
This is great. Can you imagine traders now finding out they own the s**t they've been marking at 65 but know is worth about 15.
Posted by cy , Dec 18, 2008 10:55AM
5-
Uhhh...what's wrong with that? If I buy a vacant lot in brooklyn and fix it and put a building on it, i've increased the value of my asset while helping everyone at the same time.
I think this is a great idea. Use these assets, which the banks maintain have a very specific model-based value (although the markets may not agree) to compensate employees.
Wait! What happens if once the bankers own this paper, they slice it up even further, hire some sleezy cold-callers, and try to dump it all on the general public at inflated prices?? Oh, nevermind, that's what Hank Paulson has already done.
Posted by guest , Dec 18, 2008 10:55AM
Jamie Dimon is kicking himself not to have thought of this first.
Posted by guest , Dec 18, 2008 10:58AM
The hand that taketh also giveth back
Posted by guest , Dec 18, 2008 11:00AM
@8 If its so undervalued, why aren't more banks doing it with similar assets?
Cold, hard cash now is better than an illiquid, "woefully" undervalued security possibly becoming 10x 5 years later. Plus they are allowing "outside investors" to put their money in. Why do you think that is?
Posted by guest , Dec 18, 2008 11:01AM
I hear C is giving out liquid paper...as in "White-Out"
Posted by guest , Dec 18, 2008 11:03AM
This is fuking brilliant.
Posted by guest , Dec 18, 2008 11:04AM
This is old fashioned merchant banking as done by the pros from DLJ.In another era, they might have levered 3:1 on LBO debt in a packaging co, but today, it's this new fangled securitization thingeymebobs.Kudos and may the spirit of Drexel live on!
Posted by guest , Dec 18, 2008 11:04AM
Bess, will you be my cum receptacle?
Posted by guest , Dec 18, 2008 11:08AM
Do the recipients need to pay taxes on the Level 3 marks?
LOL
Posted by guest , Dec 18, 2008 11:16AM
this is pure genius. amazing stuff. BofA should take notes...
"what to do with Countrywide... hmmm.."
Posted by guest , Dec 18, 2008 11:17AM
The Sneetches have just gone to putting stars back on their bellies. The fix-it-up chappie, Sylvester McMonkey McBean, has entered the building...
Posted by guest , Dec 18, 2008 11:20AM
The Sneetches have just gone to putting stars back on their bellies. The fix-it-up chappie, Sylvester McMonkey McBean, has entered the building...
Posted by guest , Dec 18, 2008 11:22AM
Wow, CNBC is really looking to DB for news these days.
Posted by guest , Dec 18, 2008 11:23AM
Who's going to manage the SPV holding this crap?
Posted by guest , Dec 18, 2008 11:26AM
@19 - the money will probably be contingent (i.e., subject to clawbacks and forfeiture if you leave the bank or engage in fraud, etc., etc.) which means the employees won't be taxed until it is eventually paid.
But the brilliant thing is that if it is subject to current tax, you can bet the thing will have 7 years of really cruddy level-3 marks (thus no tax is due) until year 8 when bang! these all get sold at a great price!
What a public relations coup this is - cnbc is laughing about how these guys are "getting stuck" with these mismarked illiquid assets. That's the stupidity that lets financiers win again and again.
Posted by VOL IS KING , Dec 18, 2008 11:33AM
@25:
You're assuming that we won't still be in recession in 8 years.
One word.
Japan.
The Tokyo real estate market still hasn't regained the late 1980's levels.
You idiots are still making the same fucking mistakes.
PRICES DO NOT HAVE TO GO UP "IN THE LONG RUN" OR EVER.
Fuck, its like dealing with toddlers.
Posted by guest , Dec 18, 2008 11:36AM
EP - you need a little history lesson - this bonus strategy was hardly developed by the Swiss. Back in 90/91 several investment banks did the exact same thing with hung bridges. This isn't a new approach. Maybe for you young whippersnappers its is though....
Posted by guest , Dec 18, 2008 11:37AM
A little history lesson - this bonus strategy was hardly developed by the Swiss. Back in 90/91 several investment banks did the exact same thing with hung bridges. This isn't a new approach for tough times....
Posted by guest , Dec 18, 2008 11:38AM
@26-- speaking of which. japan wants to weaken their currency. they could go large into illiquid assets and park the stuff.
Posted by VOL IS KING , Dec 18, 2008 11:42AM
@27:
They didn't even have interest rates yet in 90/91. How is it even possible to be old enough to remember 90/91? Are they getting WiFi in the nursing homes now?
Posted by guest , Dec 18, 2008 11:45AM
I like how this douche lectures one group about history then belittles another guy who cites something that is more recent. Vol is King is a tool no question.
Posted by guest , Dec 18, 2008 12:00PM
Good idea - sadly would have been better three years ago; If they knew they'd have to be holding the stuff, standards would have been higher
Posted by guest , Dec 18, 2008 12:12PM
@31:
Sarcasm.
-VIK
Posted by guest , Dec 18, 2008 12:15PM
stock ticked up soon as news broke;
might wait for official announcement before buy
Posted by guest , Dec 18, 2008 12:16PM
ah 31 now I see. Sarcasm is difficult to convey in written form.
Posted by guest , Dec 18, 2008 12:27PM
#28 wow '90, '91 stats
I thought I was the only geezer here
Cant wait for all these kids to be flushed out of system, and I get another gurantee, then bang some 20- something banker babes
Posted by HAM05 , Dec 18, 2008 12:50PM
those smart sacks of shit. theyre gonna make a fortune with this stuff in 5 yrs.
these are some of the most undervalued assets out there right now - aaa super dupers with 40% credit protection trading at a 60 $ price. redic
Posted by guest , Dec 18, 2008 1:19PM
the firm that did this back in the day was the same firm doing it today...
DLJ was the one that dumped paper on their employees...RJR bridge loans that the Vice Chair thought would default. Paper ended up being a 4-bagger in under 3 years.
Posted by guest , Dec 18, 2008 1:33PM
I wonder what they will mark it at when they place it. That is, assuming they have to mark it somewhere. That could be the tell of what they actually make, as several have already pointed out. Wouldn't they have to then mark all their similar level III's to what they valued these securities? If that is the case, it would appear as though they are getting "current market" prices. I'm laughing and crying at the same time.
Good work Brady, good fucking work. See, hes smaht, not dumb like people people say. . .
Posted by guest , Dec 18, 2008 1:43PM
I have to say, Brady Dugan is a damn fine CEO.
Posted by guest , Dec 18, 2008 1:43PM
The stuff is marked at around 65 on average
Posted by guest , Dec 18, 2008 2:04PM
@37 - Depends on what it is. 40% support to the AAA don't mean shit if it's a CDO squared of ABS crap.
Posted by guest , Dec 18, 2008 2:18PM
@42 - the guys filling this fund are in it. There's no way they are putting crap in it. They'll look at their balance sheet and say, "what is the most underpriced stuff we have?" Mark it down another 5% and put it in the pool.
It's BRILLIANT - fill the thing with Level 3 assets - no one can ever figure out that you gave the employees a sweetheart price.
Posted by guest , Dec 18, 2008 3:02PM
Gucci is coming out with a line of brass knuckles for bankers to use when trying to collect their bonuses. I can see them now, taking a week's vacation to troll the subprime neighborhoods of Cleveland. "Bitch, where my money at?"
Posted by Tapecracker , Dec 18, 2008 3:09PM
See that $5B that we think is undervalued at present levels? In about 4 years it will come back dressed up like $10B... and we can all split it. God Bless America!
Posted by guest , Dec 18, 2008 3:50PM
@44 hahahahaha
Posted by guest , Dec 18, 2008 4:34PM
@43, balance sheet is the key word, as in still on. Mark it up, b/s leverage goes up, stock price goes down. so now the stock component of your bonus gets wheelbarrowed.
Posted by guest , Dec 18, 2008 4:46PM
Fantastic! I'm sure these assets will be very cheap and great value, but I would like to see how many of these bankers actually have the patience to hang on in their personal wealth the stuff they were shoving down CS's throat...!
@ 44 - that would be hilarious. But most bankers are pussies - I don't know a single one with the guts to go to Cleveland and collect!
Posted by guest , Dec 18, 2008 4:54PM
47 here, mean't to say marks down, b/s leverage up, stock down. stand by the wheelbarrowed part.
Posted by guest , Dec 18, 2008 5:03PM
@41, 65 is probably about right, at least for the leveraged loans, but still way to high. take a look at the LCDS / cash spreads.
Posted by guest , Dec 18, 2008 6:08PM
Is FIG CS dead?
heard Jr. Cleansing took place
Posted by guest , Dec 18, 2008 7:15PM
@50, I know 65 is right because our boy Brady said so on the call today..
You can say it's too high if you like but let's face it, noone has any idea what this shit's worth.
@51 if you take out Lev Fin and SS, fixed income made a ton of money this year; mainly in flow trading.
Posted by guest , Dec 18, 2008 8:01PM
This is the oldest compensation scheme in finance. You get to own a share of your balance sheet and you can't take your assets out for several years. You know what that is? You're a general partner in a limited partnership.
Posted by guest , Dec 18, 2008 10:11PM
@50, do you actually think that LCDS is more indicative than cash loans in terms of "fair value"? LCDS is a completely broken product
Posted by guest , Dec 18, 2008 11:25PM
The news that Credit Suisse is going to pay bonuses using its troubled assets has been viewed with glee, both restrained at the NYT and unrestrained at Dealbreaker. But I'm not totally sure that this actually disadvantages the senior bankers in anyway.
Here's why. Let's say that the troubled asset pool is currently marked at fair value on the CS balance sheet. Firstly let's think about this, how do you identify high risk assets? Is it just the interest rate/risk premium on the asset? Nope, let's say its trading at 30 cents on the dollar, but you bought it (or its marked on your book) at 15 cents on the dollar, then the asset is actually in the money, and hence not troubled. Now I doubt they know what the fair value of the assets really is, but let's just assume management actually has genuine faith in the statements they've been putting out to the market saying that their marks are reasonable.
Now let's compare handing out bonuses in terms of stock awards versus a slice of the troubled asset pool. What is stock? Shareholder's equity is the residual value after all other claims have been paid. Hence if the firm were handing out stock awards, each recipient is receiving a portion of the remainder of the hypothetical value of the firm if all assets were sold and the proceeds used to pay off all liabilities.
Now if you hand out a slice of the troubled asset pool, what is the analogy? You look at the asset side of the balance sheet, identify the high risk assets, section them off, and hand them off to a trust to administer them. In theory, this is actually better for the recipients than the stock award. Why? Well let's say the assets are valued at a distressed but fair market value. In effect what is happening is that a portion of the assets is getting carved out of the benefit of the recipients, who then have a collateralized position. Ie the recipients are actually now have a senior claim on the firm with reference to the shareholders. In the same theoretical value liquidation exercise, they will receive their money before shareholders do, and in effect this reduces the value of the stock.
This is even before the identification problem. How does the bank know which assets are troubled? Let's say the bank has taken writedowns on its leveraged loans and these are piled into the bonus facility. But then perhaps the bank did not forsee a problem in the commercial mortgage market and leaves these on the balance sheet. The shareholders are still exposed to the commercial morgages as residual claimants, while the leveraged loans, if they have been written down far enough, might eventually be worth more than their written down value, and the shareholder no longer have a claim on them.
Of course most of us know that the assumption here is wrong. Those assets are not marked at fair value and CS knows it. Why no one calls them on this shit, I have no idea. Plus they're supposedly providing leverage to the facility. So what they're saying that the recipients are going to take first losses. Which means more of less that CS is paying bonuses using stuff that they already know is worthless, or that they're providing a future windfall profit to their bankers.
Why an accounting or regulatory body doesn't call these guys out on this shit is beyond me.
http://tradecoholdco.wordpress.com/
Posted by guest , Dec 19, 2008 1:38AM
#55
Thanks for posting this. Very very insightful and forthright indeed.
Who wants to call the SEC or whatever Chess & Chocolate Regulatory Authority they have in Switzerland and have Brady locked up?
Losing billions for shareholders ws not enough for him? Now he wants to steal from the shareholders!
Posted by guest , Dec 19, 2008 2:48AM
apparently you only get this "toxic asset slice" prize if you're bonus is above a certain threshhold (think $300K)
For other mere mortals, its life as usual..
Posted by guest , Dec 21, 2008 2:35PM
gee, do you think this is the worst $5bn of securities, or even a blend? I think we have to assume this is a cherry picked group of securities.