Credit Suisse

  • 22 Jun 2012 at 2:21 PM

Credit Suisse: Leave Brady Dougan Alone!

In an unusual move, the board of Credit Suisse Group AG Friday issued a statement to back Chief Executive Brady Dougan, saying it is confident management’s plans to bolster capital will ensure Switzerland’s No. 2 bank meets and exceeds regulatory requirements. Mr. Dougan’s problems have been building in recent days. Last week, he was caught up in an unusual public spat with Switzerland’s central bank over whether Credit Suisse’s capital cushion is adequate. Meanwhile, the Swiss bank’s stock has fallen sharply and some of its bankers are grumbling about Mr. Dougan’s performance as chief executive. The questions about Mr. Dougan have intensified in recent days and represent an unwelcome distraction for the bank, which has prided itself on avoiding much of the turmoil that has befallen its larger rival, UBS AG. The board has now moved to quell any speculation about Mr. Dougan’s future at the bank, saying it was comfortable with the progress that has been made toward meeting the Basel III capital requirements. [WSJ]

The Swiss National Bank is not particularly thrilled with the state of the Swiss Not-Quite-National Banks and wants them to do something about it:

The SNB is therefore of the view that both big banks should further expand their loss-absorbing capital. For UBS, this implies a continuation of its capital strengthening process; and for Credit Suisse, an acceleration of the process, with a marked increase during the current year. … For Credit Suisse, given the low starting point and the risks in the environment, it is essential that it already substantially expand its loss-absorbing capital base during the current year. Apart from the planned reduction of risk, these improvements can also be achieved in other ways, such as by suspending dividend payments, or even by raising capital on the market through share issuance.

This was unwelcome news, and the banks’ loss-absorbing capital absorbed some losses, with CS down 9.4% today. This may have come as some surprise to the SNB, which thought that its suggestions were actually shareholder-friendly, saying that it “is also in the banks’ own interest to strengthen their resilience, as a sound capital base constitutes a competitive advantage in the core business of wealth management.” JPMorgan’s Kian Abouhossein agrees, arguing in a report today that CS will improve capital by shrinking assets, mainly in the investment bank, and that: Read more »

BreakingViews has a couple of posts up about one of my favorite things in the financial universe, Credit Suisse’s habit of paying its bankers in structured credit instruments that take pages to describe. How’s that going? Great:

Three years ago, around 2,000 employees were forced to take some $5 billion of the riskiest assets from the Swiss group’s balance sheet as their bonuses. Now, recipients are being offered the chance to buy more. What once seemed like a punishment has turned into something of a perk.

Investors in the “Partner Asset Facility” already sit on a paper profit of around 80 percent, thanks to a recovery in the value of the original portfolio. That gain is essentially safe, since most of the assets involved have been liquidated or sold down and the funds are sitting in low-risk, low-return investments. The snag is that beneficiaries can’t get to the payouts until 2016.

To ease the pain of waiting, Credit Suisse is giving participants another bite. They have a chance to plough some of their paper profits back in, buying up to $1 billion of risky assets, including mortgage securities, from the bank’s books. Over a third of participants opted in to a similar offer late last year. Some of the purchases are to be funded by leverage, leaving perhaps half to come from willing PAF holders.

Phrases like “risky assets, including mortgage securities,” are always a bit of a minefield, but the sense is clear enough, which is that a whole lot of senior people at Credit Suisse are pretty keen to take money that is basically theirs, which is currently held in the form of basically cash, and invest that on a ~2x levered basis in, er, “risky assets, including mortgage securities,” which let’s just stipulate have a higher risk and higher return than cash.

How would you describe those people? Read more »

Financial news is very serious business and you should probably fret more than you do about the economy and the banksters and the muppets and the homeowners and so forth. Some things, though, are best viewed as purely aesthetic triumphs, and your reaction should just be an appreciative whistle. This starts slow but stick with it, it gets wonderful:

Our results are impacted by the risk of counterparty defaults and the potential for changes in counterparty credit spreads related to our derivative trading activities. In 1Q12, we entered into the 2011 Partner Asset Facility transaction (PAF2 transaction) to hedge the counterparty credit risk of a referenced portfolio of derivatives and their credit spread volatility. The hedge covers approximately USD 12 billion notional amount of expected positive exposure from our counterparties, and is addressed in three layers: (i) first loss (USD 0.5 billion), (ii) mezzanine (USD 0.8 billion) and (iii) senior (USD 11 billion). The first loss element is retained by us and actively managed through normal credit procedures. The mezzanine layer was hedged by transferring the risk of default and counterparty credit spread movements to eligible employees in the form of PAF2 awards, as part of their deferred compensation granted in the annual compensation process.

We have purchased protection on the senior layer to hedge against the potential for future counterparty credit spread volatility. This was executed through a CDS, accounted for at fair value, with a third-party entity. We also have a credit support facility with this entity that requires us to provide funding to it in certain circumstances. Under the facility, we may be required to fund payments or costs related to amounts due by the entity under the CDS, and any funded amount may be settled by the assignment of the rights and obligations of the CDS to us. The credit support facility is accounted for on an accrual basis. The transaction overall is a four-year transaction, but can be extended to nine years. We have the right to terminate the third-party transaction for certain reasons, including certain regulatory developments.

Oh man, if I could write like that. If I could do that*! Read more »

  • 24 Apr 2012 at 11:44 AM

Layoffs Watch ’12: Credit Suisse

Cuts are going down at the House of Dougan today. Read more »

  • 16 Apr 2012 at 10:37 AM

Layoffs Watch ’12: Credit Suisse, Maybe

The Swiss bank might cut 5,000 employees or it might not. Read more »

  • 29 Mar 2012 at 6:27 PM
  • Banks

Today In Swiss Banks With Creepy But Defensible Structured Products

I don’t really understand it but the TVIX thing is creepy fun. If you haven’t followed it, Credit Suisse issued this exchange-traded note called TVIX that was a 2x levered bet on the VIX. They suspended new issuance about a month ago due to position limits, and people were just so damn excited to own the thing that its price crept up to 189% of its fair value, where “fair value” is a reasonably easily measurable thing based on the formula in the TVIX prospectus. Then last week Credit Suisse announced that they would be creating more units, and the price plummeted to and then through fair value, which is what you’d expect to happen. Except that it started plummeting a few hours before that announcement, which is Suspicious.

So of course people are sad and there’s a Bloomberg Brief with sort of sad-funny quotes like:

“When it started to fall, I bought more because I couldn’t believe how low it was going. I didn’t realize I was playing with a hand grenade.”
– Michael Gamble [heh! - ed.], 67, who doubled down on his TVIX investment before the price collapsed.

Investors “all think: ‘Oh, I’ll just buy these things, I’ll be hedged against volatility and everything will be wonderful.’ And now they’ve seen the market goes down and their volatility protection goes down too, and they’re going ‘Hmm, what happened here?’ These people are going to have to pay a really expensive lesson.”
– Larry McMillan, who manages $30 million as president of McMillan Analysis Corp.

So, yes, Larry, they are going to pay a really expensive lesson. But what is it? Stephen Lubben has a little thing in DealBook today where he frets: Read more »