Many have suggested, snidely, that bankers should get what they deserve: their bonuses paid in those toxic securities that they created -- the ones that caused the financial crisis. It seems that Credit Suisse employed some of that much talked-about banker innovation and decided to do exactly that, and so far so good. The Wall Street Journal reports that a fund consisting of toxic securities used for their bonus pool is doing quite well:
Late Wednesday, the bank told 2,000 of its top bankers that a $5 billion fund of soured mortgages and bonds -- which it granted as a big portion of 2008 pay -- had returned 17% since January, according to people familiar with the matter.
Good, but not great. The article also notes:
The returns registered well below the 75% increase in Credit Suisse shares over the same period, and the 30% uptick in the benchmark Merrill Lynch high-yield bond index. But the fund still outperformed major stock indices, as well as initial expectations of bankers inside and outside the Swiss bank. One Credit Suisse senior banker initially decried what he called the "eat your own cooking plan" as unfair to employees who didn't contribute to the bank's 2008 net loss.
Some received more than 75% of their bonus in these toxic asset "shares," according to the WSJ. But I have to agree with that senior banker: it does seem a tad unfair to pay a someone with these shares who was doing something like merger and acquisitions advisory and never came within 100 feet of a mortgage-backed security. Still, such a plan does throw cold water on the fiery attitudes of angry mobs who blame bankers for the great recession. If banker bonuses are being paid with the stuff that created the whole mess, it should seem like sweet justice to anyone angrily wielding a pitchfork.
So will other banks jump onboard and pay their Wall Streeters with toxic assets too? Not just yet, but maybe. The Journal reports:
It is unclear whether other banks will follow Credit Suisse's lead. Several banks reached Thursday said they have looked at the idea, but no major companies have publicly committed to it. Other Wall Street executives and analysts said the idea could make sense for large commercial banks that still have heavy exposure to commercial real estate or areas of the bond market that haven't bounced back.
One of the reasons that the fund is performing relatively well is because the asset values had been aggressively slashed prior to its inception. According to the WSJ, they were already marked down to 65 cents on the dollar. That means if the bonds incur less than a 35% loss, the bankers will be paid in full -- in five years. That's how long Credit Suisse is forcing them to wait in order to cash out shares.