It has been a stressful period at Credit Suisse. Last year Tidjane Thiam was ousted as chief executive after the bank hired private detectives to spy on his colleague and next-door neighbour Iqbal Khan.
Then Credit Suisse racked up giant losses for its clients after creating funds stuffed with $10bn of dubious debt from Lex Greensill. For an encore, it racked up enormous losses for its investors by backing Bill Hwang’s Archegos Capital, which blew up later in March.
When he needs respite, Eric Varvel, the senior Credit Suisse executive who oversaw the asset management division, goes to his holiday house in Provence. We know this because his wife, Shauna, told The Times last week ahead of her forthcoming book on renovating the house: Provence Style, Decorating with French Country Flair.
The book is for sale: $50. The property is for rent: $12,000 a night. And there is even an online shop where you can buy cushions: $350. This is a comprehensive high-end side hustle.
The timing of the publicity is unfortunate. There are a lot of Credit Suisse clients who have lost a lot of money on Greensill. And although Varvel has been replaced as asset management head, he remains at the bank.
Still, this is hardly a “Where are the customers’ yachts?” situation. For one thing, this is Credit Suisse: the customers already have yachts. And the Varvel house was bought for a mere €2.5m, according to property records. Even if the majestic renovation cost twice as much again, it is not a huge amount for someone who has spent three decades at Credit Suisse, much of that in senior roles.
The episode has, though, refocused attention on pay at the Swiss bank. While Varvel’s overall remuneration is undisclosed, we do know that he benefited from a radical scheme to shift toxic assets from the bank’s balance sheet to the bonus pool.
With the benefit of hindsight, the plan, first devised in 2008, went awry. The goal was not to facilitate the purchase of seven-bedroom mansions that could spawn their own businesses and be rented out to the Obamas.
But though the risk-reward calculation may have been a bit off, the idea had merit. To recap, after the global financial crisis banks suddenly found themselves holding a variety of mortgage-backed securities and leveraged loans that no one wanted.
With their balance sheets creaking with assets that were illiquid, hard to value and subject to punitive capital charges, banks were under pressure from regulators and shareholders. Credit Suisse hit on a great idea: get rid of them by using them to pay bankers!
The assets were put in a pool, with bankers given shares. If the assets were eventually sold for more than their end-2008 value, those would pay out. If they were sold for less, the bankers rather than shareholders would take the hit.
At the time, bankers were not totally delighted that their bonuses were being paid in the form of toxic assets. They would have preferred cash or, if absolutely necessary, Credit Suisse stock. But they generally rolled with it because it was not a great time to go job hunting.
This device — known as the Partner Asset Facility — has not had many imitators, which is a shame. Share awards help align executive and investor incentives to some extent. But there are many occasions when parts of companies depress valuations. If you can hive them off and use them to pay employees, it is potentially a double-win for shareholders.
In the Credit Suisse case, the bankers won. As fear subsided in 2009, the market decided there was some value in the toxic assets and they appreciated massively. The securities full of soured mortgages helped to buy the Credit Suisse executive’s house in Provence where he could go to unwind after supervising the division that lost billions on Greensill. And so at least, after all the trouble, there is a happy ending.
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