Credit Suisse bonus pool of toxic assets gains 17 percent since January

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In an attempt to avoid public outrage over bonuses, Credit Suisse (CS) bankers received their 2008 bonuses from a pool of toxic bonds and corporate loans, rather than in cash and stock. Many feared that the toxic assets would be a total loss, but instead the fund gained 17 percent since January of this year, according to a report in The Wall Street Journal this morning.

The pool was created for senior employees to help move some of these toxic assets off the bank's balance sheet. The bank's employees were told they could wait out the bear market until these loans recovered value or were written off. The debt in this pool includes a Japanese shopping center, a mining company and a U.S.supermarket chain. Employees whose bonuses were paid with the fund can't cash out the shares for at least five years.

When the bonus pool was announced bankers thought the plan was unfair to employees who didn't contribute to the bank's losses. The bankers wanted their usual combination of cash and stock. But the bank wanted to avoid outrage in Washington and European capitals, so it didn't back down on the decision to pay with toxic assets.

So far no other bank has followed Credit Suisse's lead of paying bankers with toxic assets, but they are watching the results closely. It's a creative way to get toxic assets off the books and let the employees who were involved in their acquisition take some of the risks.

Credit Suisse does not expect to pay bonuses the same way in 2009. The bank says it has aggressively shed a lot of its beaten-down assets. It's had two strong quarters and its stock is up 75 percent since January.

U.S. banks should consider similar bonus pools to get toxic assets off their balance sheets and let the bankers who took this risk for the bank live with the consequences. In the long term, all would benefit from a healthier balance sheet.

Lita Epstein has written more than 25 books including Trading for Dummies.

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