Credit Suisse ties bonuses to $5B in risky assets

ZURICH, Switzerland -- Passing on the assets, which may turn out to be worth much less in current volatile markets, will help relieve Switzerland's second-largest bank of risky investments on its books, Credit Suisse said Thursday in an internal memo.

It also comes as welcome news to critics of the bonus culture, which they say has encouraged the kind of reckless risk taking that spurred the world's worst financial crisis in decades.

Under Credit Suisse's plan, the bank's top management will receive 70% to 80% of their deferred equity compensation in shares that will be linked to the performance of the pool of illiquid assets.

The rest of their bonus will be paid in cash, but this must be returned — or "clawed back" — to the bank under some circumstances.

Sophie Black, a remuneration consultant at Ernst & Young, said some of the banks she had been talking to had been considering basing bonuses on illiquid assets and introducing cash clawbacks, and would now likely adopt such structures.

"Most of the institutions I was talking to were skeptical about using (clawbacks). But if Credit Suisse are using it, there will be more pressure to implement it."

The memo did not contain any figures, but spokesman Marc Dosch said the assets had a book value of around $5 billion and that they would go to around 2,000 senior managers.

The shares "are linked to the performance of a pool of illiquid assets that were originated in the investment banking division," Credit Suisse said. The division was responsible for most of the bad subprime and other assets taken on by the bank in the leadup to the global financial crisis.

With these shares "a material block of legacy risk positions will be removed from Credit Suisse's risk weighted assets and this will also lead to a reduction in capital usage," the bank said.

It said earlier this month that it expects to reduce its exposure to risky investments by 12% in the fourth quarter to $170 billion.