U.S. investment bankers have reportedly started to use equity derivatives in order to get around 3-year cash-out restrictions for their bonuses.
Using a combination of options, they’re able to synthetically monetise their restricted vested shares, though at a discount to what they’d get if they waited.
So much for efforts to hold back bonus pay-outs, in order to encourage longer-term perspectives from these bankers.
eFinancialNews: “The vesting provision allows these executives to take advantage of a financially engineered legal loophole which lets corporate insiders with concentrated equity positions and holders of control, restricted and M&A stock to monetise that stock.”
“Rather than wait three or five years for the restrictions to pass, bankers would rather take a discount of up to 50% now just to get out and do something else.”
It probably makes a lot of sense to them given the time value of money and the political climate these days. You definitely want to take the money and run when you suspect politicians may come after your benefits in the future. Read more here >