When Credit Suisse Group AG (CSGN) handed out $750 million of bonuses this year in the form of bonds, generosity wasn’t the only motive.
The securities also shielded the Zurich-based bank from potential losses on $16 billion of derivatives trades — and reduced its capital needs — by shifting some of the risk onto employees, people with knowledge of the matter said. Instead of the company bearing the full brunt of any trades where customers failed to pay up, bonus recipients will share the cost.
The bonds are part of resurgence in “regulatory capital relief transactions,” created by bankers looking to cut risk and build cushions against losses without diluting shareholders, selling assets or scaling back trades and loans. Some of Europe’s biggest banks including Barclays Plc (BARC), Standard Chartered Plc (STAN) and Commerzbank AG (CBK) are paying investors and employees interest rates as high as 15 percent in return for agreeing to share losses on at least $30 billion of assets.
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