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Wow. That is ridiculous.
I bet a bunch of MBS guys at CS are pooling their bonuses together and structuring a CDO to carve out tranches as we speak.
Good for them, well to quote the article "it's better then nothing".
It is better than nothing, but it sucks in my opinion.
Terrible...but better than nothing...I'll agree with that.
hahaha this is hilarious, and i think pretty good. if the assets aren't completely toxic and just illiquid, the employees will do well, esp since CS is offering to leverage the facility (why??? i have no idea).
otherwise, the bank essentially gets to swap out 5-10 bn of toxic crap on their assets for cash. fucking brilliant.
This is an old-school move from the DLJ days, they gave out marked down LBO debt (hung bridges) and the recipients eventually made a killing on it.
This is a win-win for everyone, the overall health of the company improves, the executives can makes some money (though it will be locked up for quite a while), incentives are aligned so that the value of the debt products will improve, shareholders are happy, government & the bitching public can't say shit, etc. As long as the markdowns are fairly aggressive, and I'm sure they'll do everything in their power to make sure they are, the bonus payees should be alright (though still kicking and screaming).
I think it's a great idea. AAA-rated performing CMBS is trading at less than $.50, and it's just a matter of time and liquidity for that to rebound. These guys could be in great shape down the road.
I wonder how much insight the employees have about the assets that they are receiving so that they can figure out a way to hedge their exposure. I doubt many pwm guys have any knowledge about how to hedge illiquid debt though. I guess they'll just try to buy some CDS.
The facility is being funded by Credit Suisse so that the potential returns that could be realized by the recipients can be magnified through leverage. According to Dealbook, CS is providing leverage on up to 7x equity, so that someone receiving a $1 million bonus would be exposed to $7 million in illiquid assets. Assets are marked down about 65 cents on the dollar. Given the amount of leverage, even a small recovery could net some pretty decent gains. They are also receiving a coupon of about 4 percent. Not too shabby. All in all, looks like a pretty good deal. Conan O'Brien is showing some impressive moves.
This is a great idea.
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