Tuesday’s Headlines: Credit Suisse turns risky assets into employee bonuses
Credit Suisse will pay some of its 2011 bonuses for top executives in risky assets, repeating a move the bank first used three years ago to transfer risk from its balance sheet to employees, Reuters reports.
Switzerland’s second-largest bank will launch a new instrument for this purpose, PAF2, named after the original “Partner Asset Facility” issued three years ago. The original PAFs were built on leveraged loans and mortgages and have since soared in value, while the new securities will pay a fixed coupon and are unlikely to fluctuate much, Reuters writes.
"We believe it is a good instrument that will support both the firm's strategic transition by helping reduce risk and pay a good return for employees in most scenarios," the Credit Suisse memo said, according to Reuters.
This strategy allows the bank to free up cash much needed before new regulatory capital requirements come into effect in 2013.
Credit Suisse will own the weakest segment of the PAF portfolio, forcing it to absorb the first $500 million of losses. Further losses will reduce the principal payments made to bankers at maturity, Reuters says.
Companies, Treasury pressure TARP czar to approve huge pay packages. [New York Times]
Citigroup CEO Pandit takes top role at Davos as U.S. banks regain global status. [Bloomberg]
New Wall Street compensation models may hurt financial firms in tougher times. [Wall Street Journal]
European bank CEOs avoid Davos to focus on debt crisis, image. [Financial Times]
Former Dresdner Kleinwort bankers sue, claim $66 million in unpaid bonuses. [DealBook]
Bank of America aims to cut annual costs by another $3 billion, adding to previous cuts of $5 billion. [Investment News]
Diamondback hedge fund settles insider trading allegations for $9 million. [Financial Times]
“Occupy” protesters descend on Davos as super-rich prepare to discuss capitalism. [Reuters]
Bank of America CEO Moynihan faces more questions in series of Merrill Lynch takeover lawsuits. [Wall Street Journal]
S&P cuts Societe Generale, Credit Agricole following France downgrade. [Bloomberg]
Citigroup revamps India operations, to cut 100 jobs. [Dow Jones Newswires]
Morgan Stanley plans to sell UK wealth manager Quilter to focus on richer customers. [New York Times]
HSBC to shed Costa Rica, El Salvador, Honduras units for $801 million. [Wall Street Journal]