Bloomberg Anywhere Login


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Credit Suisse’s Dougan Said to Not Get Derivative Bonds in Bonus

Credit Suisse Group AG Chief Executive Officer Brady Dougan. Photographer: Adrian Moser/Bloomberg
Credit Suisse Group AG Chief Executive Officer Brady Dougan. Photographer: Adrian Moser/Bloomberg

Jan. 27 (Bloomberg) -- Credit Suisse Group AG Chief Executive Officer Brady Dougan won’t take part in a plan to pay employees a portion of year-end bonuses in bonds made from derivatives to avoid a conflict of interest, people briefed on the plan said.

Chief Financial Officer David Mathers and personnel chief Pamela Thomas-Graham also won’t get the bonds, the people said. The bonds, or Partner Asset Facility 2, were created to help cut risks and improve the bank’s capital position under stricter requirements. Employees including executive board members who helped design and approve PAF2 are excluded to avoid actual or perceived conflicts of interest, said Marc Dosch, a bank spokesman, without elaborating.

Executives at the Zurich-based bank may have decided “we’re not going to participate in it because if it did increase in value it might look like we’re self-dealing,” said W. Michael Hoffman, who heads the Center for Business Ethics at Bentley University in Waltham, Massachusetts.

Credit Suisse has called the new bonds a way of transferring risk from the firm to employees, and the possibility of a conflict shows the challenge Dougan faced when trying to balance their interests. The news that senior executives wouldn’t take part has angered some investment bankers who say the risks of the new bonus bonds should be borne equally by those at the top, one employee said.

Dougan, 52, told employees in an internal memo that the new bonds were “a good instrument, the right instrument to compensate our senior leaders.” The bank is in the process of cutting its Basel 3 risk-weighted assets by 85 billion Swiss francs ($92.2 billion) to 285 billion francs by the end of 2014 to boost capital ratios. The bonds help accelerate delivery on these targets, Dougan said in the memo, obtained by Bloomberg News.

Goldman Sachs

Credit Suisse investment bankers were digesting the PAF2 details as they were told that overall 2011 pay packages for senior staff -- including the new bonds -- were down about 30 percent on average from a year earlier, said people briefed on the matter who spoke on condition of anonymity because compensation discussions are private.

Wall Street firms including Goldman Sachs Group Inc. and Morgan Stanley have slashed pay for a year in which the European sovereign-debt crisis led to a slowdown in trading and deal-making.

The new PAF2 bonds reduce the amount of cash and restricted stock given to bankers and traders as part of annual bonuses, the people said.

The PAF2 bonds, in contrast to cash and stock, are “inherently hard to value,” and they have a stated maturity of nine years, Dougan wrote in the memo.

Financial Crisis

While the PAF2 bonds are expected to pay “interest and principal in full,” their current market value is estimated at a discount to face value, Dougan wrote.

Credit Suisse, Switzerland’s second-biggest bank, will absorb the first $500 million of losses on the portfolio, reducing the risk for employees, according to the memo. The bonds will pay a coupon of 5 percent for Swiss franc holders and 6.5 percent in U.S. dollars “for holders elsewhere,” Dougan wrote in the memo.

PAF2 was hatched as a sequel to the original Partner Asset Facility, an investment fund set up for staff in 2008 during the depths of the U.S. financial crisis, where employees got shares in a $5.05 billion pool of junk-grade loans and bonds backed by commercial mortgages. Dougan didn’t participate in the original PAF because he received no bonus for 2008.

Those investments have turned out to be almost as good as gold, with a 75 percent return from the end of that year through Nov. 30, people with knowledge of the results said. Gold futures returned 98 percent during the period, while Credit Suisse’s stock fell by 23 percent.

‘Bad Food’

“We are trying to strike the right balance and align employees with shareholders,” Dougan wrote in the memo. “This is an important leadership moment. As senior leaders of the firm, we are counting on you to understand the changes in our compensation plan.”

The firm hasn’t specified the amount of the bonds to be awarded to employees or the total amount of assets included.

While refraining from buying the bonds might eliminate one perceived conflict of interest, Dougan and the other executives still may risk backlash from the employees, Hoffman said.

“You have an obligation to your employees to treat them fairly,” he said. “If you have a bunch of bad food, and nobody wants to buy it out in the market and you say, ‘Well then, let’s go ahead and give it to our employees,’” it doesn’t sound particularly generous, especially if the employees had no say in this matter.”

To contact the reporter on this story: Bradley Keoun in New York at; Elena Logutenkova in Zurich at

To contact the editor responsible for this story: David Scheer at

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.