Credit Suisse plans new asset-backed bonus scheme

* Investment bankers only ones to get asset bonuses thisyear * Full details to be announced internally later in January By Laura Noonan LONDON, Jan 3 (Reuters) - Credit Suisse ispreparing to offload more risk exposure to staff in its 2012bonus giveaway but significantly fewer managers will be allowedto join the latest version of a scheme that has yielded stellarrewards in previous years. Pioneered in 2008, Credit Suisse's ground-breakingasset-backed bonus schemes pay managers a portion of theirbonuses in financial instruments whose value depends on theperformance of risky assets that the bank is exposed to. The creation of a new Credit Suisse scheme comes as banksbow to the demands of shareholders and regulators to move awayfrom cash bonuses in favour of alternatives that are morealigned with the risks bankers are taking. Two earlier schemes have helped the bank to transfer $17billion of troubled loans and derivatives off its balance sheet,improving its capital position since capital demands aredirectly related to the size of a bank's balance sheet. The schemes have also allowed the bank to save about $1.4billion on cash or share-based bonus payments. Staff, who are not given a choice about how they receivetheir bonuses, can reap sizable rewards if the underlying assetsdo well and have already enjoyed massive paper profits on one ofthe schemes, though they can't get their money until 2016. Sources at Credit Suisse told Reuters the bank was preparingto launch a new, slimmed-down scheme for 2012's year-endbonuses. Credit Suisse declined to give any information on thesize of the scheme. A spokesman for Credit Suisse confirmed the bank sent anemail to eligible staff last week signalling the creation of athird scheme, to be called the 'Plus Bond'. PARTICIPANTS LIMITED The scheme will be confined to managing directors anddirectors at the investment bank, he said. This suggests thatthe numbers of participants will be in the region of 2,000, asin the original 2008 'PAF 1' scheme which was also confined toinvestment banking staffers. A 2011 version of the scheme, 'PAF 2', included senior stafffrom the Credit Suisse Group and had 5,500 participants; theCredit Suisse spokesman declined to comment on why the 2012version was limited to investment bankers. Further details of the Plus Bond, which will have a"similar" structure and composition to the 2011 scheme, will beannounced to staff later in January, according to the spokesman. For the 2011 scheme, a $12 billion pool of derivatives wastaken out of Credit Suisse and put into a specially createdvehicle. Staff were given bonds that entitled them to regularinterest payments of 5 to 6.5 percent, and would get a payout atthe end of the scheme in lieu of their original bonus amount. The value of their final payout depends on how theunderlying assets perform; the first $500 million loss is borneby Credit Suisse and any further losses reduce the lump sumstaff ultimately get. Reports last summer claimed the value of the original PAF 1notes had shot up by 80 percent. PAF 1 included troubled assetsthat were thinly traded in 2008 and hard to value. The surge inits value came as the price of other similar assets recoveredfrom the lows of 2008 when PAF 1 was created. Staff are not allowed to sell PAF notes, so their ultimatepay-off from PAF 1 will depend on the pool's value in 2016, butsince many of the assets have already been sold some of thegains have been locked in. The asset-backed schemes, which Credit Suisse chiefexecutive Brady Dougan described in an email as "a risk transferfrom the firm to employees", are part of a Credit Suisse bonuspool that also includes deferred shares in the bank and cash. "STRIKE BALANCE" "We are trying to strike the right balance and alignemployees with shareholders," he said in the January 2012message to affected staff. "These measures put us in a goodplace to perform well in 2012." Credit Suisse's net income fell 58 percent, to 1.1 billionCHF ($1.2 billon), in the first nine months of 2012 whileearnings per share fell 63 percent, but the bank still wonpraise from analysts for its progress in cutting costs. Its shares have risen 35 percent in the last six months,against an average rise of 25 percent across the benchmarkEuroStoxx 600 index of European banks over the same period. No other bank has yet followed the PAF structure, with somebanks telling Reuters they had concerns about whether thearrangement would hold up to regulatory scrutiny in theirjurisdictions. Some bankers also feel that the schemes would not be popularwith shareholders since participants can get windfalls if theunderlying assets do well, even though the performance of theunderlying assets is linked to the overall economic climate andnot the participants' performance. Other banks are embracing cash alternatives including stockoptions and bonds, and cash bonuses are expected to fall thisyear. While some bankers would prefer cash, the reality of workingin a sector which has announced 160,000 job cuts since mid-2011 means executives are unlikely to jump ship inprotest at bonus structures. Deutsche Bank announced in October that it wascreating an independent external panel to review compensation.The findings of the panel, which have not yet been made public,will "influence 2012 year-end compensation practices", aDeutsche Bank spokesman told Reuters. Barclay's, which will announce the outcome of asweeping operational review on February 12, may also make astatement on bonus structures at that point. A spokesman forBarclays declined to comment.