Portfolio to Credit Suisse: “Good Doggie”

Jesse Eisinger of Portfolio points to a bank doing something right on compensation for once and throws them a deserved bone in the form of some rare positive press. Somehow I’m not surprised the good-actor bank is not an American one.

In so doing, Eisinger gets at the real reason for the “populist” anger at Wall Street: The fact that they still just don’t get it. He puts it well:

All along wall street, bankers are acting like amputees who can still feel their phantom limbs. Despite losing billions and getting bailed out by the government, many seem to think that nothing has changed. That deranged attitude explains why the bonus money has continued to flow despite the bailouts. And it explains why the public and Congress have revolted. Their anger is about more than money; it’s about the infuriating, though not surprising, posture from Wall Street.

But the Swiss giant Credit Suisse has taken a step in the right direction. It’s paid out half its bankers’ bonuses this year in toxic debt—and that’s of the total, which was down by nearly half from a year ago (unlike, say, Merrill Lynch, whose bonuses were hardly down, if at all). As Eisinger, whom we interviewed a few months ago, nicely puts it:

On Wall Street, the old saying is that you “eat what you kill.” In this case, Credit Suisse is making its employees eat their own garbage.

Which must taste extra bitter to these folks who created this junk and thought it was somebody else’s mess while they continued raking in the million-dollar bonuses.

It’s only barely an oversimplification to say that banker pay caused the meltdown. Pay schemes were set up to massively reward bankers for short-term profits with little regard to the long-term performance of any deals that they constructed, trades they entered, loans they made, or mergers they advised on. In other words, there was little downside if deals went bad, as many of them did.

The bad thing with the Credit Suisse plan is that these assets are still levered up with lots of debt—$5 for every $1 of assets—though Eisinger points out that’s a similar ratio to the Treasury’s PPIP plan. The leverage means the employees have a lot to gain and little to lose.

Still, it’s something. And Eisinger and Portfolio are right to point out somebody doing right and to pat them on the head.

And he leaves us with some common-sense suggestions on what the U.S. needs to do about pay:

It should mandate permanent, serious regulation of banker pay, and not just for firms receiving equity injections from the state. The government’s lending saved the financial system; it can require changes. That means restricting compensation—not just some portion but the entire package—in order to tie it to long-term performance, not just of the company but of each individual’s product. The way to do that is through changes to the tax structure, but ones that are carefully thought out. Without such changes, Wall Street bankers will continue to give them­selves what they think they deserve. And they never think they deserve less.

Eisinger’s been right about this stuff more and for far longer than just about anyone else in the press. Listen up.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.