Mar 28, 2023
Credit Suisse’s Klein Loses the Deal of His Life as Plans for First Boston Collapse
(Bloomberg) -- Not long ago, Michael Klein had a happy message for unhappy bankers at Credit Suisse Group AG: We’re going to get rich.
Things aren’t quite turning out that way.
Klein – Midas of M&A, money-whisperer to Saudi royals – just lost the deal of his life. And, along with it, a shot at C-suite glory and a personal payday stretching upward of $200 million.
The Wall Street rainmaker’s grand plans for turning around the Swiss bank and reviving the First Boston name have all but collapsed now that UBS Group AG has agreed to buy its beleaguered rival.
Clients in the Middle East are furious. Allies are stunned. At Credit Suisse, the bankers Klein boasted would get rich are eyeing the exits. It’s a remarkable turnabout for Klein, one of the marquee dealmakers of his time.
Klein, 59, has spent three decades cultivating CEOs, sniffing out money and discreetly advising world leaders. Huge IPOs, mega-mergers, hot-then-not SPACs: Michael Klein has done it all. Privately, rivals have long marveled, not without envy, at his ability to make money off just about everything he touches.
CS First Boston was supposed to be his triumph, his chance to finally run a major investment bank. Now, Klein must show the financial world that he’s still in the game – that he can shake off what looks like a monumental miscalculation.
Only weeks ago, Klein had handlers and allies talking up his plans to spin off Credit Suisse’s investment-banking operation and take a new CS First Boston public. One of those associates went so far as to characterize him as a “Henry Kissinger of banking,” a globe-striding diplomat of deals.
According to an early internal estimate, the equity and warrants he got for selling his advisory boutique to Credit Suisse stood to deliver a payday of more than $200 million if he pulled off his plan for CS First Boston and all went well with an IPO and subsequent performance. That’s gone up in smoke.
Klein, as usual, will still make money. He could walk away with more than a $20 million break-up fee. That’s on top of a $10 million fee that the Swiss bank paid his boutique to bring him in while they awaited regulatory approval to make him an executive.
But he’s leaving behind a litany of foiled plans and thwarted ambitions. He encouraged longtime clients in Saudi Arabia to invest $1.5 billion in Credit Suisse only to have the bank collapse into the arms of a competitor shortly after. They lost more than $1 billion of their money. He was lining up even more capital from the Middle East and the private equity industry for CS First Boston.
This look at the rise and fall of the ambitions to create a new carved-out investment bank is based on interviews with more than a dozen of Klein’s colleagues, clients and competitors, as well as bankers who attended multiple town halls where Klein laid out his vision.
Representatives for Credit Suisse declined to comment for this story, as did Klein, who seldom if ever grants interviews.
In hindsight, the weakness that made Credit Suisse desperate for a charismatic leader like Klein to stem the exodus of dealmaking talent ultimately sank his chance to pull it off.
Elected to Credit Suisse’s board of directors in 2018, Klein last year helped lead a strategic review at the struggling bank. As head of a committee for the investment-banking division, he pushed to spin off that business, bring back the First Boston brand and find someone to run a reincarnated CS First Boston.
Credit Suisse took his advice. And it picked someone to head CS First Boston: him. Klein was about to trade a low-profile advisory business with 40-odd employees for a global brand with thousands.
The crowning IPO was supposed to come as soon as 2025. No one knew precisely what CS First Boston might fetch in the stock market. But projections circulating in late 2022 placed the initial value at $5 billion.
Internally, Klein had been telling Credit Suisse bankers that he would work for a $1 salary. He also vowed to spend 150 days a year on the road drumming up business in order to secure a lofty valuation. He agreed to take his entire payment for his advisory firm in CS First Boston stock. Stick with me, he told bankers, and you’ll get stock too.
Some 50 to 100 dealmakers were told they’d become part of a partnership and get up to 20% of the spun-out firm. That could’ve been a pot of around $1 billion, based on the $5 billion projection.
UBS executives will be less inclined to take Klein’s advice. They’re still trying to untangle his deal, according to people familiar with the matter. Rather than spinning out the investment bank, UBS is planning to cherry pick the best people to bring over.
It’s quite a comedown given Klein’s history. In 2007, toward the end of a 23-year run at Citigroup Inc., he persuaded Abu Dhabi to invest billions in Citi even as the subprime mortgage crisis was blowing up. He left the following year after getting passed over as CEO but collected a consolation prize: a reported $42.6 million departure package.
Over the next decade and a half, Klein became an archetype of the 21st-Century dealmaker.
A few months after leaving Citi, he collected $10 million for advising Barclays Plc on its purchase of the brokerage business of failed Lehman Brothers Holdings Inc. Later, he worked both with Glencore Plc and Xstrata Plc before those two tied up in 2013. And he advised in the mega-merger of Dow Chemical Co. and DuPont Co. that was announced in 2015, the largest deal in the chemicals industry at the time.
“He is all about finding a solution,” Howard Ungerleider, President of Dow, said before Credit Suisse unraveled.
As lucrative as those arrangements were, Klein is perhaps best known as a trusted adviser in the Middle East. He was instrumental in helping Saudi Arabia’s giant state-owned oil company, Saudi Aramco, go public in 2019. At more than $29 billion, it was the world’s biggest initial public offering.
Klein’s ties to Saudi royals are so close that he’s occasionally worked as an unofficial emissary. At the Future Investment Initiative conference in Riyadh in 2017 – the so-called Davos in the Desert — Klein steered a collection of Wall Street executives into a receiving line for Crown Prince Mohammed bin Salman, assuring the prince would make a suitably grand entrance, according to people who were present.
The Saudis may not be quite as friendly now given their investment in Credit Suisse has collapsed in value in just a few months. The Saudi National Bank ended up owning almost 10% of the Swiss bank after participating in a capital raising late last year. The SNB’s chairman resigned this week.
Klein’s investors haven’t always been on the winning side lately. Just look at his SPACs, those blank-check companies that took Wall Street by storm in 2021. Today, many of them are underwater.
Klein himself still found a way to make a killing, collecting fees for advising on his own deals.
That mirrors this latest episode. Even as nearly everyone involved with Credit Suisse walks away scarred, Klein’s failed plan is still set to net him more than $5 million a month.
--With assistance from Gillian Tan, Tom Maloney, Ambereen Choudhury, Dinesh Nair and Jan-Henrik Förster.
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