UBS Aims to Boost Its Dealmaker Ranks, Not Spin Out First Boston

(Bloomberg) -- UBS Group AG wants to cherry pick top dealmakers from Credit Suisse Group AG’s investment bank instead of supporting Michael Klein’s plan to build a new independent firm, according to people familiar with the discussions.

UBS executives have told their Credit Suisse counterparts that they prefer selectively bolstering their own investment bank while dumping the riskier operations, the people said, asking for anonymity because the review has just begun and no final decisions have been made. In initial talks, the acquiring bank indicated little interest in continuing the planned effort for a CS First Boston carveout that would create a new competitor, the people said. 

All this means Klein’s dream of leading a new investment bank under the revived CS First Boston brand looks increasingly unlikely. Still, some Credit Suisse staff are holding out hope that Klein and banking chief David Miller can line up an alternative plan, the people said. Some executives have reached out to potential suitors for the investment bank including Japan’s Mizuho Financial Group Inc. to generate interest that they could then pitch to UBS, the people said.

Spokespeople for UBS, Mizuho and Klein declined to comment. Credit Suisse representatives didn’t return calls seeking comment.

Credit Suisse’s nascent First Boston plan was thrown into turmoil by the Swiss bank’s crisis of confidence and emergency takeover. The effort had captured the attention of Wall Street as a spinout unprecedented in modern finance and a rare business model that featured a boutique-like advisory practice with the need for a bigger balance sheet to support its leveraged finance unit. Klein had promised a partnership-like structure that recalled an earlier era and gave star dealmakers a share in the upside. 

UBS Chairman Colm Kelleher’s comments at a Sunday press conference that UBS planned to shrink the combined investment bank sparked some hope among Credit Suisse staff that its rival might be open to the spinoff idea, particularly since it included a riskier leveraged finance business. But Kelleher’s comments may have been more aimed at his Swiss rival’s trading operations. And as discussions between business leaders kicked off Monday, those hopes started to fade, the people said. 

UBS is particularly interested in advisory bankers in the US and those working on prominent industries such as technology, as well as some regional teams, some of the people said, which would fit the firm’s existing focus on capital-light advisory work.

UBS executives also indicated little interest in completing a deal to buy Klein’s boutique, the people said. The longtime dealmaker, who pushed for a spin-out as a Credit Suisse board member and then was named CEO-designate of the business, recently agreed to sell The Klein Group to the bank in a $210 million deal which is yet to close. 

And any attempt to salvage the plan would face significant hurdles. Saudi Arabia had been weighing an investment in CS First Boston, but just lost more than $1 billion in a matter of months on its stake in Credit Suisse that Klein helped arrange. And moves to legally and operationally separate the business had only just started. 

To be sure, Klein has pulled off various feats in his storied, multi-decade career. The rainmaker played a key role in the record breaking listing of Saudi Aramco, the world’s biggest oil company, and oversaw several mega-deals during his time at Citigroup Inc.

Credit Suisse said last year it had a $500 million commitment from a potential backer in CS First Boston, but has never named the investor. Chief Executive Officer Ulrich Koerner said as recently as last week that the firm was looking at a potential initial public offering for the business in 2025 and that it had several parties that were interested in becoming investors. 

The spinoff had been a centerpiece of the troubled Swiss lender’s restructuring and an attempt to protect and grow its best-performing investment banking businesses, such as advising on mergers and acquisitions. 

Credit Suisse said in its annual report last week that senior leaders of the First Boston investment banking spinoff would own as much as a fifth of that business if it proceeded with plans for an initial public offering. Employees would be awarded restricted share units in CS First Boston, which would vest three years after the offering and be subject to a further holding requirement.

Between 50 and 100 existing CS First Boston managing directors would be up for partnership in the boutique’s new organizational structure, which will be similar to that of banks like Goldman Sachs Group Inc., executives said at a recent off-site meeting, according to people who attended the presentations.

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