Photo: Daniel Goodman / Business Insider
Bloomberg is reporting that Credit Suisse has informed senior employees that they will be compensated in part with bonds backed by derivatives.The derivatives are linked to about 800 entities and the bonds will pay a 5% coupon for Swiss franc holders and a 6.5% coupon rate for U.S. dollar holders.
CEO Brady Dougan said in an internal memo that the move was a “risk transfer from the firm to employees.” He also said the portfolio covers about 18 per cent of the credit exposure in the firm’s derivatives business and is 94 per cent investment-grade and about 50% collateralized.
Credit Suisse will absorb the first $500 million in losses in the pool of bonds, with any additional declines reflected in the value of employees stakes.
This is not the first time the Swiss bank has made this move. In 2008, the bank paid bonuses comprised of toxic assets that have since increased in value by 75%.