Credit Suisse

  • 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 »

  • 23 Mar 2012 at 3:49 PM

Double Volatility Product Double Volatile

I blame spring break both for the lack of news this week and for the fact that what news there is revolves around trading glitches. Apparently spring break has cleared New York not only of responsible adult bankers and traders taking their kids to Disney, but also of responsible adult trading computers who are off doing God knows what, leaving the callow analyst computers alone to man their desks. And no one should be surprised that they got a few things wrong on their first day in charge.

Away from BATS, the glitchy news is in TVIX, a 2x levered short volatility ETN issued by Credit Suisse. And the craziness here seems to be caused not by robots on the fritz or fat fingers. Here is the story:

Credit Suisse Group AG (CSGN), under pressure to restore order in an exchange-traded note tracking U.S. equity volatility, said it will start resupplying the market with shares today after cutting issuance off in February.

Stock will be added to the VelocityShares Daily 2x VIX Short-Term ETN (TVIX), or TVIX. The security, designed to track Chicago Board Options Exchange Volatility Index futures, has whipsawed investors for the past month, climbing 89 percent above its asset value and plunging 29 percent yesterday before Credit Suisse’s announcement. It fell another 19 percent to $8.23 at 9:56 a.m. New York time today, extending its retreat since Oct. 3 to 92 percent. [When I looked it was swinging wildly around in the $7.50ish area, which is a bit under its $7.83 NAV as of yesterday, go figure.]

Creating shares in the ETN will help bring the security back in line with its so-called indicative value, the price implied by futures on the CBOE gauge, said Alec Levine*, an equity derivatives strategist at Newedge Group SA in New York. Credit Suisse’s first round of share issuance is intended to lower the cost of borrowing the note, a step that may aid short sellers who yesterday helped cut the premium by 66 percent even as owners of the security were burned.

“Lending out shares is an attempt to drive down the premium,” Levine said yesterday in a phone interview. “When your product isn’t trading anywhere near NAV, it’s the market telling you that it’s a broken product.”

So that’s sort of a hilarious way to put it. “If you offer widgets at a suggested price of $29.95, and people are reselling them at $56, that’s the market telling you your widgets are broken.” Not … exactly. Read more »

I’ve been thinking a lot about financial industry compensation recently, and probably so have you, for different reasons. As a non-recipient of said compensation, I’ve been waxing philosophical about how your bonus can incentivize you either to put on low-risk trades that are unlikely to blow up your firm or to go instead with high-risk overlevered bets that look good in December but will leave the place a smoking ruin in March, by which point you’ll be out of there with your pile of bonus CLOs. But if you don’t take kindly to other people telling you what to do / “incentivizing” you to do it, there’s always the do-it-yourself bonus, either in the traditional form (write checks to self) or in the slightly more complicated form of writing down the amount of money that you would like your trades to make, then getting a bonus based on the number you wrote down: Read more »

  • 31 Jan 2012 at 6:55 PM

Layoffs Watch ’12: Credit Suisse

The cuts won’t go down until the spring, so just something to keep in mind. Read more »

  • 27 Jan 2012 at 11:57 AM

Bonus Watch ’12: Credit Suisse

“People are furious.” Read more »

Dealbreaker has long admired Credit Suisse for being on the cutting edge of creative approaches to compensation. In 2008, they gave bankers bonuses consisting of “toxic assets” to (1) incentivize the risk-takers to stick around and (2) remind people that “toxic assets” is a meaningless term if you don’t consider price. That worked out okay. This year, they’re giving junior mistmakers bonuses consisting of nothing, as a gentle reminder that there are other, similarly nonremunerative careers that might be better suited to their interests and talents. That also seems to be working. And now there’s this piece of magic:

Credit Suisse Group AG, Switzerland’s second-biggest bank, plans to pay a portion of senior employees’ 2011 bonuses in bonds packaged from derivatives linked to about 800 entities.

The move “is a risk transfer from the firm to employees,” Chief Executive Officer Brady Dougan, 52, wrote in a memo to the firm’s staff and obtained by Bloomberg News. “We are trying to strike the right balance and align employees with shareholders. These measures help to put us in a good place and to perform well in 2012.” …

The bonds mature in nine years and will pay a coupon of 5 percent for Swiss franc holders and 6.5 percent in U.S. dollars “for holders elsewhere,” Dougan wrote. Credit Suisse will absorb the first $500 million of losses on the portfolio, according to the memo.

How can you not love this? My favorite part is that shareholders eat the first tranche of losses. OOOH NO BANKSTERS ROBBING SHAREHOLDERS, you think – well, not you, but someone thinks – except no. Read more »