You made it, you eat it: Credit Suisse pays staff in risky debt

Investment bankers are set to receive bonuses in assets they helped to create

Credit Suisse, one of the biggest investment banks in London, is set to pay its bankers bonuses in the risky debt they helped create, in a scheme that could reignite controversy over pay in the finance sector.

Earlier versions of the deal, which is understood to have secured approval from the Financial Services Authority, have generated substantial windfalls for bankers because the supposedly "toxic" assets have performed far better than expected.

The new offer is thought to involve around 2,000 senior investment bankers with the rank of director or managing director, many of whom work at the bank's Canary Wharf HQ.

Called Plus Bond, it is expected to closely resemble the second version known as PAF 2, which saw the bank shifting a $12bn (£7bn) portfolio of derivatives into a specially created vehicle for top bankers. Staff were given bonds that entitled them to generous interest payments of up to 6.5 per cent with a payout at the end of the scheme in lieu of their original bonus amount. The value of that final payout depends on how the underlying assets perform but if there are losses the first $500m are borne by Credit Suisse.

The first scheme, known as PAF 1 and set up in 2008, is likely to shower bankers with riches. The $5bn pool was made up of thinly traded assets which have recovered sharply in value since the financial crisis. PAF 1 notes have reportedly shot up in value by 80 per cent.

While final payouts depend on the value of the assets in 2016, some have been sold, locking in gains.

PAF 2 in 2011 saw the bank shifting $12bn of assets from its own balance sheet into a specially created fund for 5,500 bankers. Final details of the third scheme are set to be revealed to staff some time this month.

But the previous schemes have saved Credit Suisse around $1.4bn in cash or share-based bonuses.

FSA rules require bonus schemes for top managers and those charged with "risk" functions, such as traders, desk heads and supervisors, to have a substantial part of their bonus deferred and made subject to clawback if the bank or their part of it performs poorly. The watchdog is understood to have told banks that any scheme like this must not be used as a way to get around the rules, but is thought to have okayed Credit Suisse's proposal for Plus Bond.

A spokesman for the bank insisted any outperformance by the assets in the scheme, beyond the generous interest payments, would be retained by the bank's shareholder this time.

A survey of several investment banks by The Independent found no plans to do anything similar. Other banks have used bonds in lieu of bonuses, but they function much more like standard corporate bonds and are therefore more closely aligned to the performance of the bank.

One banker said: "We would question how this would work. It would seem to be linked to underlying economic performance rather than the performance of the bank. Because of that we would wonder what shareholders would feel about it."

"We are trying to strike the right balance and align employees with shareholders," Credit Suisse chief executive Brady Dougan wrote in a memo to staff when he launched the 2011 scheme. It's "a risk transfer from the firm to employees", he explained, adding: "This is an at-risk investment but our best estimation from actual experience is that this will pay its interest and principal in full."

Credit Suisse declined to say why this year's Plus Bond will be restricted to so many fewer staff than PAF 2.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before