Credit Suisse hands out illiquid junk for bonuses

Posted Dec 22nd 2008 11:29AM by Zac Bissonnette
Filed under: Management, Employees

With bonuses down big across Wall Street as the market meltdown send income statements deep into the red, a lot of investment bankers aren't going to be too pleased with their bonuses this year.

Credit Suisse is trying something a little bit different. Credit Suisse will be paying it bankers their bonuses with a combination of the usual cash and nearly impossible to trade junk bonds: the kind of garbage that banks have been trying to sell to the Treasury Department to dump the liquidity problem onto taxpayers.

I like this plan: If the bonds really are just illiquid -- and not total crap, as I'm inclined to suspect -- then the bankers will make out like bandits in a few years when credit markets stabilize and liquidity returns.

Another part of Credit Suisse's bonus program is generating some controversy: a portfolio of the cash bonuses paid out will have a "clawback" provision requiring that they be repaid if the employee leaves within two years. According (subscription required) to The Wall Street Journal, this could lead to some lawsuits

I'm not exactly sure what the problem is: As long as employees are notified of the terms of their pay package before they do the work, the banks can pay them whatever/however they want.

They should be happy to be receiving bonuses at all.

Tags: Credit Suisse, CreditSuisse, CSFB, executive pay, ExecutivePay, Inthenews, investment banking, InvestmentBanking

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Reader Comments (Page 1 of 1)

12-22-2008 @ 11:47AM

Michael said...

You're statement is wrong. Bonuses are for the prior years work. Yes, they're lucky to get bonuses but the work has been done BEFORE they know what the pay package is. Pretty basic....

12-22-2008 @ 12:38PM

BHarrison said...

Well, if the "bonus pay" is for "prior work"; and if it turns out that the work was GROSSLY FLAWED with irresponsibility, incompetence, and even FRAUD (pyramid and Ponzi schemes), THEN why would these individuals be entitled to ANY BONUSES AT ALL???

This "retrospect aspect" of it all is no different than the losses that are being incurred by those who invested at the inducements by these management personnel into the "investment schemes" that they orchestrated, and now have caused so many investors to lose substantial investment money. Shouldn't these inept, Incompetent, and/or CORRUPT management personnel suffer losses comparable to those who invested in their FRAUDULENT schemes?

The "bottom line" is that these individuals do NOT deserve ANY BONUSES at all.

This really is merely a ploy by the FIs to get these "bad investments" (bad paper) off their books. However, should these investments remain on the books so that ANY profits that are realized would STILL go towards repaying those who have been duped in these investments? Whether it winds up being a "nickel or dime on the dollar", something is better than nothing.

And some of these "thought to be almost "worthless investments" may wind up having some value. (Can you imagine the "gaming" that is going on inside of the corporations as to who will get which of these "bad investments"? There is always massive "gaming" of these types of gimmicks.

12-22-2008 @ 2:39PM

Kent said...

This claw-back sounds rational to stem abusive financial behavior in the banking system. If I were an employee, I would not touch those bonuses and keep them in a 401K type account just in case I screw up unknowingly (my case). If I'm hiring, I'd make sure there are no claw-back issues with those employees; otherwise they would pose risks to my bank or financial institution.

12-22-2008 @ 3:55PM

Michael said...

No one said that the bankers who did not do their job should receive bonuses. Sounds like you're trying to find someone to blame for your own misgivings.