I have to hand it to Brady Dougan, CEO of Credit Suisse. He has shown some fiendishly clever imagination in paying bonuses to his managing directors. Instead of giving them multimillion dollar cash bonuses this year, he's paying them in the very thing that has brought Wall Street to its knees -- $5 billion of its leveraged loans and commercial mortgage-backed debt.
This move alone demonstrates that Credit Suisse is using its brain. By doing this, Dougan keeps the future losses of $5 billion worth of its toxic waste from cutting into Credit Suisse's earnings. Since the alternative was giving them no bonus at all, those managing directors will have a chance to share the emotions of all the people to whom they sold that toxic waste.
Not only that, but it will be much harder to get the general public angry at Credit Suisse for paying bonuses in toxic waste than other firms that are actually paying cash to their employees. Credit Suisse took $2.8 billion in losses in October and November, but it has not received any government money, unlike its peers. But the cleverest part of all is the accounting for the $5 billion in bonuses.
Credit Suisse is putting the $5 billion in toxic waste bonuses into a facility that will remain on Credit Suisse's balance sheet and will be held in its fund management division. The new structure will mean that any mark-to-market losses or gains on the assets will be offset by identical gains, or losses, on the bank's liability to employees. In other words, instead of those losses cutting into profits, they'll have no impact on profits at all -- they'll just be accounting entries on the balance sheet.
Three cheers for Brady Dougan's plan to make Credit Suisse managing directors eat their own dog food!
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
12-19-2008 @ 9:40AM
Gerry said...
Credit Suisse has set a great example of how all banks taking the taxpayer's money should be forced to act in compensating the executives that have caused the global financial collapse!