Saturday, 20 December 2008

Compensating controls

I almost fell off my chair laughing when I read this. Which is not a very sober response to a very sensible proposal: Credit Suisse is going to use $5 Billion of Illiquid Assets to pay Bonuses. As Bloomberg reports:
The bank will use leveraged loans and commercial mortgage- backed debt, ... to fund executive compensation packages.

Assets in the facility will remain on Credit Suisse's balance sheet and will be held in the company's fund management division, the people familiar with the plan said. 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.

Employees will receive semi-annual coupon payments on their investment in the Partner Asset Facility at the London Interbank Offered Rate plus 2.50 percentage points. The ultimate value of the facility will be determined over the next eight years as the loans and securities mature or default, the people said.
This is a really really good idea in fact. If bankers know that this can happen, they will be strongly incentivised not to originate illiquid assets. But you can just imagine the looks on the faces around the CS trading floors...

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