You're paying me what now?
December 18, 2008 8:19 AM Subscribe
Credit Suisse is the first bank to use commercial debt to pay employee bonuses this year. Another take on bonuses this year
If I had the power, I'd pay myself the biggest bonus I could until someone stopped me... just sayin'
(maybe someone should stop them)
posted by gagglezoomer at 8:28 AM on December 18, 2008 [2 favorites]
(maybe someone should stop them)
posted by gagglezoomer at 8:28 AM on December 18, 2008 [2 favorites]
The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company
This strikes me as being both sensible and poetic justice.
posted by xthlc at 8:29 AM on December 18, 2008
This strikes me as being both sensible and poetic justice.
posted by xthlc at 8:29 AM on December 18, 2008
I assume they are going to use commercial debt to pay my account 10% interest too, right?
posted by DU at 8:30 AM on December 18, 2008
posted by DU at 8:30 AM on December 18, 2008
Yeah, considering I work for a company that froze contributions (and discontinued) to our pensions, eliminated our bonuses, gave crappy raises, and eliminated 10% of the workforce in a recent (and third round of layoffs this year) I was going to say forgive me if I don't read the articles. But I am the kind of guy that likes to piss myself off, and this just didn't do it for me.
The first company (Suisse) looks like they are being smart and creative. They are taking something no one wants to buy, and giving it to employees to get it off their books. If it turns around, the employee wins. Win win.
Suisse didn't take any bailout money, and isn't even a US company.
The second link incites more outrage.
posted by cjorgensen at 8:34 AM on December 18, 2008 [4 favorites]
The first company (Suisse) looks like they are being smart and creative. They are taking something no one wants to buy, and giving it to employees to get it off their books. If it turns around, the employee wins. Win win.
Suisse didn't take any bailout money, and isn't even a US company.
The second link incites more outrage.
posted by cjorgensen at 8:34 AM on December 18, 2008 [4 favorites]
(My comment, and this one, should be deleted as ill-informed, ill-timed spouting.)
posted by DU at 8:46 AM on December 18, 2008
posted by DU at 8:46 AM on December 18, 2008
Why didn't anybody think of this before?
You tell your employees you're going to be paying their bonuses in MBS instead of cash and see how that goes. In any other environment, you get beheaded.
posted by jckll at 8:47 AM on December 18, 2008
You tell your employees you're going to be paying their bonuses in MBS instead of cash and see how that goes. In any other environment, you get beheaded.
posted by jckll at 8:47 AM on December 18, 2008
What ye sew, etc.
posted by backseatpilot at 9:01 AM on December 18, 2008
posted by backseatpilot at 9:01 AM on December 18, 2008
I always seem to get debt for Christmas too.
posted by mazola at 9:16 AM on December 18, 2008 [2 favorites]
posted by mazola at 9:16 AM on December 18, 2008 [2 favorites]
I sew patches on my pants. What does that mean?
posted by a robot made out of meat at 9:53 AM on December 18, 2008
posted by a robot made out of meat at 9:53 AM on December 18, 2008
If I were a top-exec at Credit Suisse I would think this is a pretty good bonus. If the value of the securities goes up, then I collect my bonus. If the values drop, then I can sell them in the future for a loss to balance against gains in other investments. And I'm guessing that since no one really wants these right now, the execs are getting a huge stake which means big $. Its like having stock options except that you can still benefit if the stock drops.
The real kick in the nuts for shareholders (and account holders, etc.) is that these execs didn't spend their own money buying these assets and didn't lose a fortune as they became worthless, but they stand to gain a lot of money if these securities recover even a little bit.
posted by wabashbdw at 9:54 AM on December 18, 2008
The real kick in the nuts for shareholders (and account holders, etc.) is that these execs didn't spend their own money buying these assets and didn't lose a fortune as they became worthless, but they stand to gain a lot of money if these securities recover even a little bit.
posted by wabashbdw at 9:54 AM on December 18, 2008
If the values drop, then I can sell them in the future for a loss to balance against gains in other investments.
Or you can get taxpayers to buy you out. In all cases you get paid huge dollars. Clever.
posted by Blazecock Pileon at 9:59 AM on December 18, 2008
Or you can get taxpayers to buy you out. In all cases you get paid huge dollars. Clever.
posted by Blazecock Pileon at 9:59 AM on December 18, 2008
If I were a top-exec at Credit Suisse I would think this is a pretty good bonus. If the value of the securities goes up, then I collect my bonus. If the values drop, then I can sell them in the future for a loss to balance against gains in other investments.
Plus, since these things have no public value but you do know how they are performing, you can cherry pick the best performing ones for yourself and stick the bank with the crappy ones.
posted by procrastination at 10:18 AM on December 18, 2008
Not sure about CS but MD and D level isn't all that high in generally flat IB structures - 50% of the staff as an estimate - titles are pretty meaningless. Should mean a boost for scientific and medical research about 10 years out tho ...
posted by fistynuts at 10:48 AM on December 18, 2008
posted by fistynuts at 10:48 AM on December 18, 2008
I knew I went into the wrong profession. It must be nice to get paid millions to be completely incompetent.
posted by ryoshu at 11:24 AM on December 18, 2008
posted by ryoshu at 11:24 AM on December 18, 2008
The Credit Suisse thing doesn't strike me as terrible. On the contrary it seems like a decent idea. Instead of either giving cash bonuses or nothing at all to some of their high-level people, they're giving them the bank's own crappy paper.
Basically everybody wins; the bank gets the crap paper off its books without selling it at auction (and thus finding out what it's really worth and taking the writedown, presumably), and the employees get the potential of some sort of bonus instead of nothing. The worst-case scenario is that the paper ends up being worth nothing, and the directors and other execs whose bonus it represents take the hit, as they probably should.
The second link ... well, that one just made me realize I've been in the wrong line of work these past few years.
posted by Kadin2048 at 12:21 PM on December 18, 2008
Basically everybody wins; the bank gets the crap paper off its books without selling it at auction (and thus finding out what it's really worth and taking the writedown, presumably), and the employees get the potential of some sort of bonus instead of nothing. The worst-case scenario is that the paper ends up being worth nothing, and the directors and other execs whose bonus it represents take the hit, as they probably should.
The second link ... well, that one just made me realize I've been in the wrong line of work these past few years.
posted by Kadin2048 at 12:21 PM on December 18, 2008
It's still a bonus. Worse, I'd say that, unless a meteorite strikes the Earth, it can only ever appreciate from its present value.
Now, if they started paying those top managers their basic salaries in those "assets", then we'd be talking. Otherwise, the only "bonus" these financial smartasses should expect from me is this.
posted by Skeptic at 1:26 PM on December 18, 2008
Now, if they started paying those top managers their basic salaries in those "assets", then we'd be talking. Otherwise, the only "bonus" these financial smartasses should expect from me is this.
posted by Skeptic at 1:26 PM on December 18, 2008
As an analyst commented in the article, it's very, very clever. But I see two issues.
First of all, we know that the market value of many structured products has declined sharply, some as much as 80% (or more!).
At the same time, we know these prices are unrealistic; some of the CDOs I've looked at are pricing in default rates well north or 50%, sometimes 75%. This is just unrealistic.
Even back in The Great Depression, without the extensive government safety nets (not to mention attention) mortgage default rates peaked at about 37%. That's why we structure these things to assume a worst case, 40% default.
So they're paying everyone bonuses based on the sharply depressed values - now.
When (of course small nod towards "if") the markets snap back, if these same structured products will recover even 50% of their pre crunch value these guys are gonna be very, very happy.
Example: an asset is worth $1 at the outset.
Events transpire that depress the value of this asset, and now it's only worth $0.20 . This is a temporary condition, but the holder of that asset needs money and can only raise $0.20 . Some purchaser is happy to take it off his hands, perhaps even fully knowing true value.
Six months pass, and now that asset is worth $0.50
Another six pass and that asset is now worth $1.00
The holder of that asset, who paid $0.20 is very happy as he's now got an asset worth $1.00
I bet bonuses will be paid based on the depressed value, not par.
Another point - they no doubt will cherry pick the assets to be used to fund this bonus pool. Discriminatory factors: I'd look for assets with the lowest current market value, but the highest probability of increases in value.
Seems like a great idea to me - they give massive PR they couldn't buy, and are funding a bonus pool using the (temporarily) depressed value of assets they've carefully selected as most like to sharply appreciate in value.
Or maybe I'm just too damn suspicious.
posted by Mutant at 1:49 PM on December 18, 2008 [1 favorite]
First of all, we know that the market value of many structured products has declined sharply, some as much as 80% (or more!).
At the same time, we know these prices are unrealistic; some of the CDOs I've looked at are pricing in default rates well north or 50%, sometimes 75%. This is just unrealistic.
Even back in The Great Depression, without the extensive government safety nets (not to mention attention) mortgage default rates peaked at about 37%. That's why we structure these things to assume a worst case, 40% default.
So they're paying everyone bonuses based on the sharply depressed values - now.
When (of course small nod towards "if") the markets snap back, if these same structured products will recover even 50% of their pre crunch value these guys are gonna be very, very happy.
Example: an asset is worth $1 at the outset.
Events transpire that depress the value of this asset, and now it's only worth $0.20 . This is a temporary condition, but the holder of that asset needs money and can only raise $0.20 . Some purchaser is happy to take it off his hands, perhaps even fully knowing true value.
Six months pass, and now that asset is worth $0.50
Another six pass and that asset is now worth $1.00
The holder of that asset, who paid $0.20 is very happy as he's now got an asset worth $1.00
I bet bonuses will be paid based on the depressed value, not par.
Another point - they no doubt will cherry pick the assets to be used to fund this bonus pool. Discriminatory factors: I'd look for assets with the lowest current market value, but the highest probability of increases in value.
Seems like a great idea to me - they give massive PR they couldn't buy, and are funding a bonus pool using the (temporarily) depressed value of assets they've carefully selected as most like to sharply appreciate in value.
Or maybe I'm just too damn suspicious.
posted by Mutant at 1:49 PM on December 18, 2008 [1 favorite]
So, where can I apply for a bailout?
posted by Citizen Premier at 2:37 PM on December 18, 2008
posted by Citizen Premier at 2:37 PM on December 18, 2008
Mutant: if they're such a great deal, shouldn't people be snapping them up? Is the inside information key?
posted by a robot made out of meat at 2:38 PM on December 18, 2008
posted by a robot made out of meat at 2:38 PM on December 18, 2008
a robot made out of meat -- "if they're such a great deal, shouldn't people be snapping them up? Is the inside information key?"
No doubt there is some degree of information asymmetry in play here. The holders of the assets clearly have inside knowledge, as you picked up on. And management gets to pick and choose which assets are placed into the bonus pool.
So the left hand uses public funds (ala TARP) to take the crappiest assets off their books, moving them straight onto the public's balance sheet, while the right hand busily funds the bonus pool with the potentially most valuable assets.
And some people definitely are snapping up these structured products and clearly mis priced loans when they can get them. I'm aware of several hedge funds that have started up for this express purpose.
Some people are going to be making lots of money in the perhaps not so distant future.
posted by Mutant at 3:15 PM on December 18, 2008 [2 favorites]
No doubt there is some degree of information asymmetry in play here. The holders of the assets clearly have inside knowledge, as you picked up on. And management gets to pick and choose which assets are placed into the bonus pool.
So the left hand uses public funds (ala TARP) to take the crappiest assets off their books, moving them straight onto the public's balance sheet, while the right hand busily funds the bonus pool with the potentially most valuable assets.
And some people definitely are snapping up these structured products and clearly mis priced loans when they can get them. I'm aware of several hedge funds that have started up for this express purpose.
Some people are going to be making lots of money in the perhaps not so distant future.
posted by Mutant at 3:15 PM on December 18, 2008 [2 favorites]
Some more work needs to be done on your math, guys, particularly when it relates to taxes.
They cannot take a tax loss if the value of the investment goes down unless they paid taxes on the initial value - which they will.
Suppose you get "$100" nominal value of some security as a bonus. Then you must pay taxes on this as if it were $100 in cash - let's say $40. Now if this security isn't liquid, you're going to have to pay that $40 out of your own pocket. If the security goes to 0, you can use that $100 loss to defer other gains of $100 you might have had - but you're out $40 already, so the best place you can end up is 0 (assuming your tax bracket didn't change dramatically from year to year).
Frankly, I see no tax advantage in this at all.
posted by lupus_yonderboy at 7:07 PM on December 18, 2008
They cannot take a tax loss if the value of the investment goes down unless they paid taxes on the initial value - which they will.
Suppose you get "$100" nominal value of some security as a bonus. Then you must pay taxes on this as if it were $100 in cash - let's say $40. Now if this security isn't liquid, you're going to have to pay that $40 out of your own pocket. If the security goes to 0, you can use that $100 loss to defer other gains of $100 you might have had - but you're out $40 already, so the best place you can end up is 0 (assuming your tax bracket didn't change dramatically from year to year).
Frankly, I see no tax advantage in this at all.
posted by lupus_yonderboy at 7:07 PM on December 18, 2008
Goldman took $10B of TARP money and paid out a little less than $11B of bonuses. I find this annoying.
posted by ikkyu2 at 7:52 PM on December 20, 2008
posted by ikkyu2 at 7:52 PM on December 20, 2008
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