Friday, December 19, 2008

Credit Suisse helps solve the toxic debt problem

In a fiendishly clever plan, Credit Suisse Group AG has found a way to reduce its exposure to toxic securities and transfer risk off its balance sheets--it's paying senior executives' bonuses with them.

Managing directors and directors, the two highest ranks at the Zurich-based company, will be paid year-end bonuses in its most illiquid loans and debt. Those assets will be transferred to a "Partner Asset Facility," and those directors will receive shares of ownership in the facility. Those assets will make semi-annual payments to the owners, with the full value only to be known as the assets mature or default.

1 comment:

Miserly Bastard said...

It is all about the mark on these assets as soon as they are transferred to the compensation pool. If CS had them marked at par, it's a hosing for the employees; on the other hand, if CS had them marked at 10 cents, it is potentially a huge sub silencio payout to senior management. News reports indicate that the average mark was 65 cents, but you need to know the underlying asset to determine what type of mark this was. If we're talking hung LBO bridge loans, this might be a fair value (or even a very conservative mark); if these are supersenior tranches of CDO-squareds, well then 65 cents is about 65 cents more than the stuff is worth.