The holidays are usually a happy time for investment bankers. It’s the time when year-end bonuses get doled out, bonuses that can reach 10 to 15 times annual salary. Not so this year, when a stock market crash, credit crunch and economic recession have forced many firms to cut back or eliminate bonuses, and lay off hundreds of staff.
One particular organization has taken a particularly creative and some might say ironic, twist to year-end bonuses. Credit Suisse has announced that it will pay up to 80 percent of its 2008 year-end bonuses in the form of illiquid junk bonds and mortgage-backed securities and corporate loans – the same kind of financial flotsam that has been clogging up the financial system. Instead of paying cash, they’ll pay bonuses “in kind” with securitized paper.
Douglas Rediker, co-director of the Global Strategic Finance Initiative at the New America Foundation, hailed the idea in an article in CNN.com. Not only does it help the bank’s balance sheet to unload this stuff, he says, but it also serves as a poignant reminder to financial professionals to create and sell financial products that have real and lasting value. According to Rediker, you can’t just create these products and then walk away from the wreckage when it all goes bad. You should be willing to invest in it yourself.
Bankers at Credit Suisse are understandably furious. Especially those in unrelated fields such as M&A and research who had nothing to do with CDOs and the like. But for years, the success of structured products pumped up bank profits – and the bonus pool – and no one complained then.
It all sounds like a 2008 version of Charles Dickens’ A Christmas Carol.
Here’s hoping that you and your loved ones have something more satisfying to enjoy this holiday season.