Banks shun exotic elements in their bonus pots

Tue Jan 15, 2013 10:38am EST
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By Laura Noonan

LONDON (Reuters) - Fears of a backlash from shareholders and regulators are preventing major European banks from copying Credit Suisse CSGN.VX and paying bonuses in exotic instruments such as specially created derivatives.

Many bankers will see a sharp fall in the size of their bonuses this year, but payouts will still largely be made up of cash and shares as the financial industry seeks to avoid accusations it is using opaque structures to line employees' pockets.

"Last year there was quite a lot of talk about exotic bonuses," said one investment banker, who declined to be named because he is not authorized to speak to the media. "There's no talk about it at all now."

For Credit Suisse, its strategy of paying its employees a portion of their bonuses in sometimes risky assets has not only proved lucrative to some recipients, it also helped cut its exposure to $17 billion worth of loans and deals.

The Swiss bank is repeating the model this year.

Viewed in some quarters as an innovative reaction to the financial crisis, other banks are, however, loathe to follow suit.

The Swiss bank's use of exotic bonuses was born out of necessity when it lost 3 billion Swiss francs ($3.3 billion) in two months in 2008 as the credit crunch hit the value of some of its assets, and it had to improve its capital position.

With other investment banks not under the same sort of intense pressure, they are steering clear of payouts that risk delivering windfalls that could rile investors.   Continued...

A the shadow of a man and of the logo of Swiss bank Credit Suisse are thrown on stairs in Zurich February 6, 2012. J REUTERS/Arnd Wiegmann