CREDIT Suisse, Switzerland’s second-largest bank, is to pay a portion of 2011 bonuses for its top executives in risky assets in an extension of a programme the company first used three years ago, according to an internal memo.
Credit Suisse said its new bonus programme would help meet bonus expectations for its staff while allowing the bank to reduce its holdings of risky assets.
“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.
This is the second time the bank has transferred risky assets from its balance sheet to its bankers via the deferred portion of their bonus, allowing the bank to free up capital.
The new instrument is known as PAF2, a throwback to the bank’s original Partner Asset Facility launched three years ago, which linked most top executive bonuses to some $5bn (£3.2bn) in illiquid assets that had tumbled in value in the credit crisis.
The PAF2, which vests in March and matures in nine years will pay a five per cent coupon for Swiss franc holders and 6.5 per cent in US dollars for holders elsewhere.
Credit Suisse will own the equity, or lowest-rated, part of the portfolio, and will absorb the first $500m of losses, if any, in the portfolio, with further defaults eating into the principal, reducing payouts to bankers at maturity.
City A.M. Reporter