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The Next Time Credit Suisse Inadvertently Shoots Itself, Someone Else Will Foot The Bill

Looks like someone learned to insure itself against...itself.
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Things are going so swimmingly at Credit Suisse lately that a couple of weeks ago, an investor compared the bank to an office building that’s about to fall down.

Well, if, in fact Credit Suisse’s actual office buildings do fall down, its innovative new insurance policy won’t cover it. Nor will it cover any future nine-to-ten figure checks cut to various government agencies for the sort of things you cut nine-to-ten figure checks to government agencies for. Those things are still going to come out of the bonus pool.

But if (Ha! “If”) there are a few Kweku Adobolis hanging around in one of those collapsing office buildings, and his or her rogue trading goes undetected by Credit Suisse’s new anti-rogue-trading spy technology, and it and some other unauthorized screwup causes said building to collapse...well that would be covered.

The insurance feature of the bonds would be triggered if Credit Suisse’s annual operational risk-related losses cross $3.5 billion. Buyers have a level of comfort, however, because it’s a “second-event” bond. The most any single event could contribute to the trigger is $3 billion, meaning it would take more than one event to cross the threshold….

The bank can’t call on the money to cover regulatory liabilities or government fines, the people said. Losses from rogue trading, which have hobbled large banks such as Société Générale and UBS Group AG in recent years, could be covered by the insurance provided by the bond, but any fines stemming from it wouldn’t be, they said.

New From Credit Suisse: Bonds for Self-Inflicted Catastrophes [WSJ]


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