We love this idea. It's an incredibly creative and elegant way to pay out bonuses and not offend regulators: Credit Suisse is using some of the $5 billion under water / illiquid assets already on its books including leveraged loans and mortgage-backed paper to create a "Partner Assets Facility". The assets will remain on Credit Suisse's books, and plan participants will get semi-annual interest payments of Libor + 2.5%. Depending on the performance, there may be cash payouts over time if values increase.
We bet more firms jump on board this idea. A lot of the paper that's currently way under water is gonna be worth a fortune, maybe not in the near term, but in the future.
“While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,” Chief Executive Officer Brady Dougan and Paul Calello, CEO of the investment bank, said in the memo.
“It’s monstrously clever,” said Dirk Hoffman-Becking, an analyst at Sanford C. Bernstein Ltd. in London who has a “market perform” rating on Credit Suisse stock. “From a shareholders’ perspective it’s great because you’ve got rid of some of the assets and regulators will be pleased because you’ve organized a risk transfer.”
“Cash payments representing distributions of a portion of the award may be made to participants in the future contingent on the performance of the underlying assets,” Dougan and Calello said in the memo. “Cash distributions will not be made for several years.
Credit Suisse to Use Illiquid Assets to Pay Bonuses - Bloomberg
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