The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.
Credit Suisse Group AG, selling riskier assets to free up capital, has found a ready buyer: its own employees.
Gold futures returned 98 percentin the period, while Credit Suisse’s shares declined 23 percent.
The reduction in so-called risk-weighted assets will cut Credit Suisse’s capital requirements,the person said.
The gains, which also beat the 4.8 percent return of two-year Treasuries, show how the rebound in debt markets from thelows of 2008 has sweetened the Zurich-based bank’s executivebonuses compared with the cash and stock bonuses rivals paid.
“It worked out in favor of the employees,” said Ann Rutledge, a former Moody’s Investors Service analyst who’s now aprincipal at R&R Consulting in New York, which rates mortgagebonds and other asset-backed securities.
The earlier bomb scare at Credit Suisse’s 1 Madison Avenue HQ may have been a hoax (or, considering this news, a diversion) but the sneaky announcement that the Swiss bank is preparing to fire 49 employees, once again courtesy of the DOL’s appropriately named WARN website, is all too real.
CreditSuisse loaned employees the money to buy shares in the fund, anddemand was so great that the bank could only fill 90 percent ofthe orders, the people said.
Chief Executive Officer Brady Dougan, now 52, said inDecember 2008 that the decision to transfer the assets to staffwould position the firm “well for 2009” and strike the“appropriate balance” between employees, who might otherwisehave suffered steeper pay cuts, and shareholders, who would haveborne the risks of further declines.
The company, which posted a loss of 8.2 billion francs($8.8 billion) for 2008, recovered the following year with a6.72 billion-franc profit.
Suzanne Fleming, a companyspokeswoman, said the fund’s results are private.
Credit Suisse didn’t use a third party to value the assets,which were transferred at market prices in accordance with thebank’s compliance controls, said a person familiar with thematter.
The bank’s shares, which surged 80 percent in 2009,tumbled 26 percent in 2010 and 41 percent last year.
Under the ESOP plan, companies provide their employees the opportunity to acquire the company’s shares at a reduced price over a period of time.
The employees were given$800 million of equity in the fund, with Credit Suisse providing$4.25 billion of loans to bolster the fund’s buying power, thepeople said.
Credit Suisse may act as the lender to theemployee fund, one person said.
While the plan relieved shareholders of risks, the timingproved to be a windfall for the employees.
The S&P/LSTA USLeveraged Loan 100 Index (SPBDLLB), which tracks prices for loans tocompanies with junk-grade credit ratings, fell that month to arecord low of 59 cents on the dollar.
A Credit Suisse Group AG index shows the Reserve Bank of Australia will cut its 4.5 per cent benchmark by 166 basis points to a record within a year.
Initially, the value of the PAF shares fell, people withknowledge of the results said.
As of February 2009, the equityin the PAF held 90 percent of its initial value, they said.
By May 2011, the value had doubledover the original, before sliding to the 75 percent gainestimated as of November, the people said.
It could have turned out worse for the employees, saidAnthony Sanders, a former Deutsche Bank AG analyst who’s now afinance professor at George Mason University in Fairfax,Virginia.
At Deutsche Bank (DBK) AG, senior executives are evaluating whether to cut or freeze pay for the top tier of vice presidents as a way to pare all junior-banker pay, said a person familiar with the matter.
Had the prices for leveraged loans or commercialmortgage-backed securities, known as CMBS, continued to plunge,“they would have gotten absolutely annihilated,” he said.
The ultimate value of the PAF fund, overseen by CreditSuisse Managing Director Jonathan McHardy, won’t be determineduntil 2016, one person said.
For now, employees’ investments arelocked up, and their final payouts may change.
Nor will his company, Johnson Associates, pay million-dollar bonuses to any of its 12 employees this year.
30, assets in the PAF had been reduced to $2.6billion, as some of the bonds and loans were paid off or sold,the people said.
At the end of its 2007 fiscal year, Morgan Stanley’s $1.05 trillion of assets was supported by only $30 billion of equity.
Bloomberg reports that Credit Suisse will be tamping down pay bumps for analysts and associates.
The move allowsCredit Suisse to rid itself of residential mortgage bonds, whilegiving the employees a chance to use borrowed money to increasereturns on their total investment, the people said.
While those employees will get their regular annual salary increases, bonuses probably will be lowered to keep total pay flat from a year earlier, said the person, who requested anonymity because the plan isn’t public.
As with the original fund, assets were transferred to thenew fund at their estimated market value, people with knowledgeof the matter said.
Bill Vanzyl is a business journalist based in Tokyo, Japan. Bill has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Bill spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.