Now how's that for dessert???
Credit Suisse bankers are getting toxic bonusesBy Louise Story and Julia Werdigier Published: December 18, 2008
NEW YORK:
As Wall Street banks face public outrage over the large bonuses they plan to pay workers this year, Credit Suisse's investment banking unit told senior bankers on Thursday that they would have to eat their own cooking.Credit Suisse will pay a portion of bonuses for thousands of its senior investment bankers using shares of troubled assets left over from before the financial crisis.
These assets - mostly leveraged loans and commercial mortgage bonds - are selling at distressed levels, if at all, and continue to cause devastating losses across Wall Street.
"In an industry where many competitors have gone out of business, people have lost their jobs, where regulators are ratcheting up their requirements, the public at large doesn't believe investment bankers should be paid much, if anything," Paul Calello, the head of the investment bank, said in a telephone call with senior bankers, according to two people who were on the call.
Banks like Goldman Sachs, Morgan Stanley and Merrill Lynch are completing their bonus pools and will begin announcing awards to their employees in coming weeks. Bank executives have said that bonuses will be lower this year, and that the top executives will not receive bonuses at all.
But even scaling back pay drastically would still add up to significant bonuses for rank-and-file traders and bankers. Banks say they need to pay these employees something above and beyond their salaries to keep them coming to work. But critics say bonuses should be reconsidered, given the billions of dollars of taxpayer money that has been injected into many of the banks.
"This should be a year of no bonuses for any firm that took bailout money," said Peter Singer, a philosophy professor at Princeton University and a pre-eminent ethicist. "The assumption of having to take public money is that your firm is in an emergency situation, and you put out your hand for public help."
Credit Suisse also said it would introduce "claw-back" provisions on the cash portion of bonuses, allowing it to take back part of workers' pay in the future if their bets turn out to have been flawed. That follows similar announcements by Morgan Stanley and UBS.
But Credit Suisse is the first bank to weight its bonuses this year with toxic assets left over from its past. The bank said that $5 billion of the assets it has had trouble selling would be put into a new investment vehicle that it was calling the Partner Asset Facility. Shares of the vehicle will be given to its managing directors and directors as part of their bonuses, replacing some of the cash and stock that would have been paid in bonus money.Of course, the bank's shareholders already felt the pain from much of the assets that will be put in the vehicle. Credit Suisse has been among the most aggressive in its write-downs. The assets in the new vehicle are already marked at 65 cents on the dollar, on average. That means if the assets recover, the bank's employees - not shareholders - will be the ones to benefit.
The asset plan, however, allows the bank to save money on compensation this year, which benefits shareholders, according to a spokeswoman. And many banks have sold toxic assets to outsiders at steep discounts, passing on the opportunity to reap any future gains.Credit Suisse's asset plan does not include provisions for troubled assets it might create in the future, and some experts on compensation said the industry should focus more on broader reforms of employee pay. Financial workers often play a role in valuing the investments they make, and they have incentives to be optimistic in the short-term.
"Wall Street disproportionally focuses on short-term results compared to other industries," said Richard Cellini, a senior vice president at Integrity Interactive, a consulting firm in Waltham, Massachusetts. "In the short run, we all look like geniuses. It's the middle run that counts in most businesses."
Credit Suisse said this month that it would cut 5,300 jobs, or 11 percent of its work force, and that its top executives would not receive any bonuses for this year. For the third quarter, the bank posted a loss of 1.26 billion Swiss francs, worth $1 billion at the time, with the securities unit reporting a pretax loss of 3.23 billion francs after 2.43 billion francs of write-downs.