Credit Suisse came upon a truly admirable way to pay out bonuses to their traders.
The traders are screaming "foul", and are eager to try a legal smackdown on the evil scheme.
For those who missed it this week, there was some fun news - Credit Suisse decided to pay bonuses to the guys who sold this trash around the world, the crap that the traders represented as a solid investment.
Some Credit Suisse Group bankers were left reeling after the bank said it would pay a substantial percentage of their 2008 compensation with an illiquid group of junk bonds, mortgage-backed securities and corporate loans.
It was quite the schadenfreudelicious moment, realizing that the smug bastards would be handed a taste of their own medicine as compensation for their efforts.
Not content to take their much justified smacking like men, the welfare entitlement class is whining pathetically over the treatment, and threatening to go to the law. and no, this isn't "Onion" satire - it is a real reaction from people who just don't get it.
But is it legal? Deal Journal asked employment lawyers, who believe the plan might meet with some serious legal challenges.
Credit Suisse’s plan is a simple, if creative, flip to the usual cash-and-stock bonuses that bankers usually get. The cash portion of investment bankers’ bonuses–usually about 50% of a total bonus–will be subject to a "clawback" provision that will allow the bank to take back 2008 compensation if a banker leaves the firm within two years. The stock portion of bonuses will be mostly replaced by interest in a new "partner asset facility," or PAF, which will consist of leveraged loans and commercial mortgage-backed securities that the bank cannot currently find buyers for.
The PAF plan was scorn from Credit Suisse investment bankers, who were angry about having the bonus system changed drastically just before they expected to cash in. "Who the heck knows what this is? It’s a bunch of junk that they can’t move in the market, and they’re handing it to us. To me, it’s worth zero. It’s two lumps of coal and I was looking for the gumdrop," said one. "How many different ways can they tie you to the firm? At some point, you have to decide you actually want to work here. It’s stick, stick, stick, and where’s the carrot?’
Many people outside Credit Suisse, including executive recruiters, showed enthusiastic support for the plan and said the bankers should examine the "upside," as they put it. "What is worth more eventually, debt trading at distressed prices or the stock of a Wall Street firm?" asked one headhunter.
A typical response: "We’ll see if this is enforceable," swore a senior banker furiously.
The clawback provision may be the biggest source of legal trouble, according to lawyers. "I think it might change through trial and error," said John Singer, a co-founder of law firm Singer Deutsch. "I also think there will be challenges in court to the legality of this. It is an onerous form of a restrictive covenant that may ultimately not be deemed legal. I think the policy is going to get shelved."
Singer reasoned that investment bank employees are required to go through an arbitration process if they have objections to their bonuses. In his opinion, few arbitration panels would allow a bank to take back a banker’s bonus if no wrongdoing was found.
An open note to any lurking jerks - please raise a fuss about this. Whine to everybody you can find, try and gain public support.
Whine and whimper as loudly as you can, so that all the middle class people that you've fucked out of hard-to-earn dollars will avoid patronizing your industry for the next two generations.