Iowa Banking Law Blog

Use of Illiquid Assets in Executive Compensation Packages

Reports in the financial press indicate that Credit Suisse Group (“Credit Suisse”) plans to use some of its illiquid assets to partially fund bonuses for executives.  Executives would receive an interest in an asset facility to which the illiquid assets are assigned.  Changes in the mark-to-market value of the illiquid assets, which would remain on the balance sheet of Credit Suisse, would result in offsetting gains or losses in the liability to participating executives.  The asset facility is expected to continue for eight years as the illiquid assets mature or default, with cash payments to participating executives to begin after five years based on the performance of the underlying assets.  This approach to executive compensation should enable Credit Suisse to conserve cash and transfer the risk associated with these illiquid assets to the executives.  The executives may benefit if the illiquid assets perform well over the term of the asset facility.  Other companies that hold illiquid assets may be considering a similar approach.  How the various regulators will view such proposals is not completely clear. 

 

By Arthur Owens.

December 25 is Important, but Don't Forget About December 19

Financial institutions and bank and savings and loan holding companies and other eligible entities that did not completely opt out of the FDIC's Temporary Liquidity Guarantee Program (the "TLG Program") become subject to certain mandatory disclosure requirements on December 19, 2008.

The TLG Program has two components:  the debt guarantee program and the transaction account guarantee program.  Each component has separate disclosure requirements. 

An entity that did not opt out of the debt guarantee program must include the following disclosure statement in all written materials provided to lenders or creditors regarding any senior unsecured debt issued by it on or after December 19, 2008 through June 30, 2009 that is guaranteed under the program:

    This debt is guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States.  The details of the FDIC guarantee are provided in the FDIC's regulations, 12 CFR Part 370, and at the FDIC's website, www.fdic.gov/tlgp.  The expiration of the FDIC's guarantee is the earlier of the maturity date of the debt or June 30, 2012.

If an eligible entity retained the option of issuing non-guaranteed senior indebtedness it must include the following disclosure statement in all written materials provided to lenders or creditors regarding any senior unsecured debt issued by it on or after December 19, 2008 that is NOT guaranteed:

    This debt is not guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.

The immediately preceding disclosure would only be important if you reserved the right to issue non-guaranteed senior unsecured indebtedness and do, in fact, issue any such non-guaranteed senior unsecured indebtedness.

Each insured depository institution that offers non-interest bearing transaction accounts must post a prominent notice in the lobby of its main office, each domestic brand and, if it offers internet deposit services, on its website clearly indicating whether it is participating in the transaction account guarantee program.  If it is participating in the program, the notice must state that funds held in non-interest bearing transaction accounts at the entity are guaranteed in full by the FDIC.

Here is a sample disclosure for a participating entity: 

    XYZ Bank is participating in the FDIC's Transaction Account Guarantee Program.  Under that program, through December 31, 2009, all non-interest bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.  Coverage under the Transaction Account Guarantee Program is in addition and separate from the coverage available under the FDIC's general deposit insurance rules.

or, if not participating:

    QRS Bank has chosen not to participate in FDIC's Transaction Account Guarantee Program.  Customers of QRS Bank with non-interest bearing transaction accounts will continue to be insured through December 31, 2009 for up to $250,000 under the FDIC's general deposit insurance rules.

Contact Allyn Dixon at 515.246.4520 or at adixon at dickinsonlaw.com for further information.

 

 

FDIC To Provide Expanded IOLTA Insurance Coverage

Amid pressure from U.S. senators and the American Bar Association (ABA), among others, the FDIC decided recently that client funds deposited by lawyers in Interest on Lawyer Trust Accounts (IOLTA), no matter how large, may receive full deposit insurance coverage through December 31, 2009 under the Temporary Liquidity Guarantee Program. 

With programs operating in every state, IOLTA provides a means of pooling interest from client trust accounts to provide legal aid to the poor at no cost to the public, clients, or lawyers.  In 2007, for example, IOLTA programs provided more than $212 million towards legal services to the poor.  However, considering the current economic climate, the ABA feared that without the FDIC’s insurance coverage, lawyers would need to abandon IOLTA entirely for fully-insured but non interest-bearing accounts, which would spell certain disaster for legal aid funding.  The ABA also feared that lawyers would be forced to move IOLTA funds, en masse, from the smaller community banks to the larger national banks assumed to be immune from failure. 

At one point, it was argued that lawyers could simply establish multiple accounts at different financial institutions in order to take advantage of the FDIC’s $250,000 maximum insurance limit.  However, the ABA argued that it would be impracticable to determine whether a client’s cumulative funds at one particular bank – including the client’s trust account held by the lawyer – exceeded the $250,000 limit.

The FDIC’s revised IOLTA coverage is effective immediately.

For more information on this topic, please email Mary A. Zambreno.

Deadlines Approach for Liquidity Guarantee Filings and Capital Purchase Program Filings

Friday, December 5th at 11:59 E.S.T. is the deadline for opting out of the FDIC's Temporary Liquidity Guarantee Program.  Eligible entities (FDIC insured depository institutions, bank and S&L holding companies) that do not opt out will automatically be enrolled in the program, but still are required to report certain information by the Friday deadline and deliver a signed Master Agreement within five business days of their affirmative election to opt in, or their automatic enrollment.

Privately-held C corps must deliver their application to particpate in the Capital Purchase Program by Monday, December 8.  This means that unless the application can be hand delivered, applications should be in an overnight mailing in time to reach the  Federal Reserve by Monday's deadline.  The deadline for publicy-held eligible institutions has passed.

The deadline for filing to participate in the Capital Purchase Program on the part of S corps and mutual associations has not yet been established.

For questions, contact Allyn Dixon at 515.246.4520.