Portfolio Closes Up Shop and Credit Suisse Gets it Right

Its practically common knowledge that magazines and newspapers are in
survival mode with the way advertising budgets are pared down. So I
wasn’t surprised to learn my subscription to Conde Nast’s Portfolio was
coming to an end. It was very helpful for me, a blog writer, in coming
up with ideas. For instance, this past month it ran a piece about how Credit Suisse is paying bonuses. Here is the excerpt I really like:

So is there a better way? Credit ­Suisse,
a Swiss bank that has weathered the credit crisis better than most,
created an ingenious and gratifying solution to the problem of outsize
pay for Wall Street failure. It decided late last year to pay out part
of its bonuses in toxic assets. On Wall Street, the old saying is that
you “eat what you kill.” In this case, Credit Suisse is making its
employees eat their own garbage.

What’s satisfying about
Credit Suisse’s plan is that it shows that investment banks are capable
of learning and bowing to outside pressure. Bonuses on average at the
bank were down 44 percent in 2008 compared with 2007, and employees in
the investment-banking division took a greater hit relative to others.
Bankers at Credit Suisse did get about half of their bonuses in cash,
but instead of stock, top employees, including all the managing
directors (except for the very top dogs, who received no bonus at all
last year), received an interest in what the bank is calling the PAF,
the Partner Asset Facility. It’s made up of assets the bank valued at
just over $5 billion after roughly $2.6 billion in write-downs—meaning
that the employees got assets worth about 65 cents on the dollar.

that valuation is surely higher than what the assets would get if they
were sold in the market right now. The great question about all these
illiquid assets currently on bank balance sheets—one which goes to the
heart of whether Treasury Secretary Tim Geith­ner’s bank-rescue plan
will work—is what are they worth? Is the market setting fire-sale
prices that don’t reflect their actual value, or are they truly
impaired? The banks argue that the market has become temporarily
irrational and that the prices it’s setting don’t represent the assets’
true value. In recent years, this hasn’t been an argument as much as a
desperate belief. At least in Credit Suisse’s case, it’s putting its
money where its beliefs (and employees’ mouths) are.

This seems like such a simple way to both placate your employees (who
doesn’t want a bonus) and the tax paying public. Plus I like the idea
of particular products being part of the portfolio of the bonus. It
ensures a real belief in what you are selling.

Working Thoughts 05/14/09
Oil Attention


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