As Plans For The First Boston Collapse, Credit Suisse's Klein Loses His Life's Work

In a recent letter to unhappy employees of Credit Suisse Group AG, Michael Klein made a happy announcement: We're all going to make plenty of money.

‍

As it turns out, things aren't quite going as planned.

‍

There was no doubt that Klein was the Midas of Mergers and Acquisitions, the money-speaker of the Saudi royal court, and he just miscalculated the deal of his life, which included an unprecedented shot at management glory and personal wealth well in excess of $200 million.

‍

As UBS has agreed to acquire First Boston, one of the Wall Street rainmakers' grand plans to turn around the Swiss bank and resurrect the name of the Swiss bank has all but come to an end as the Swiss bank has fallen on hard times.

‍

There are furious customers in the Middle East. There are stunned allies. At Credit Suisse, the bankers who Klein told the world were going to become rich are now considering leaving. This is a remarkable turnaround for Klein, one of the most accomplished deal-makers of his generation.

‍

Since he was 59 years old, Klein has been cultivating CEOs, sniffing out money and advising world leaders discreetly for three decades. There is no shortage of things Michael Klein has done, from huge IPOs to mega-mergers to hot-then-not SPACs. Privately, rivals have long marveled at the way in which he is able to make money off just about everything he touches, not without envy.

‍

In what seems like a monumental mistake, Klein has lost what was supposed to be his golden opportunity to become the head of a major investment bank, CS First Boston. Klein must prove that he's still in the game, that he's still putting effort into this endeavor.

‍

The plans Klein was making a spin-off of Credit Suisse's investment banking operation and the IPO of a new CS First Boston were discussed just weeks ago by handlers and allies. The associates of his described him as “Henry Kissinger of finance,” a globetrotting diplomat of deals who was known as a world-traveling diplomat.

‍

It was estimated by an internal executive that if he pulled off his plan for CS First Boston and all went well with an IPO and subsequent performance of the company, he would earn more than $200 million from the equity and warrants he received for selling his advisory boutique to Credit Suisse. As a matter of fact, everything has gone up in smoke with that deal.

‍

The Swiss bank had already paid Klein's boutique $10 million as part of the hiring process to bring him in while they awaited regulatory approval to make him an executive at the bank. Klein, as usual, will still make money. He may walk away with more than a $20 million break-up fee.

‍

But he's leaving behind a litany of foiled plans and thwarted ambitions. Credit Suisse had been the bank he recommended to longtime Saudi Arabian clients to invest $1.5 billion in it. However, it collapsed shortly afterwards to the hands of a competitor. More than $1 billion was lost by the investors. He also arranged for even more money to be raised for CS First Boston by private equity firms and the Middle East.

‍

The authors of this article have interviewed more than a dozen of Klein's colleagues, clients, and competitors, as well as bankers who attended multiple town halls where Klein presented his vision for the creation of a new carved-out investment bank in order to explore the rise and fall of his ambitions. 

‍

Neither Credit Suisse nor Klein, who rarely if ever grants interviews, wished to comment for this story, because they do not wish to be interviewed.

‍

Upon looking back on it, in retrospect those weaknesses which made Credit Suisse desperate to find a charismatic leader like Klein to stem the exodus of dealmaking talent ultimately ended up sinking Klein's chances of becoming the next CEO.

‍

Klein was elected to the Credit Suisse board of directors in 2018, and last year led a strategic review of the bank that had caused the bank's decline. In his capacity as the head of the investment banking department, he pushed for the division to be spun off, the First Boston brand to be brought back, and he looked for an individual who would manage a reincarnated CS First Boston.

‍

As a result of Kyle Klein's advice, Credit Suisse hired someone to head CS First Boston, and he was the person chosen for the job. Klein was about to start a global brand with thousands of employees, as opposed to a low-profile advisory firm with 40 or so people.

‍

In late 2022, projections circulating in the market suggested that an initial value of $5 billion might be achieved by CS First Boston in its IPO, which was supposed to occur as early as 2025. Nobody knew exactly what CS First Boston would fetch on the stock market, but estimates were spread in late 2022.

‍

In his internal discussions with Credit Suisse bankers, Klein had been stating that he was willing to work for a salary of $1, and that he would spend 150 days a year on the road promoting his advisory firm to achieve a lofty valuation. In addition, he agreed to pay for his advisory firm with CS First Boston stock, which would be his entire payment. He told the bankers, “You will also get stock if you stay with me.”

‍

It has been reported that as many as 50 to 100 dealmakers have been told they can get up to 20% (over $1 billion) of the spin-off firm in exchange for becoming part of a partnership. According to the $5 billion projection, that could amount to towards $1 billion.

‍

In this case, UBS is less inclined to follow Klein's advice. According to people familiar with the matter, the firm's executives are still trying to figure out his deal. Instead of spinning out the investment bank, UBS is planning to cherry pick the most qualified people to join it.

‍

The fact that Klein left Citigroup Inc. at the end of his 23-year career is a pretty remarkable comedown given his history. In 2007, while the subprime mortgage crisis was raging, he convinced Abu Dhabi to invest billions of dollars in Citigroup. In the following year, after getting passed over as CEO, he left with a consolation prize of $42.6 million: he received a compensation package as a consolation prize for leaving.

‍

He became a symbol of the dealmaker of the 21st-Century over the course of the following decade and a half.

‍

He was paid $10 million for advising Barclays Plc on the purchase of the brokerage business of failed Lehman Brothers Holdings Inc. Several months later, he was the advisor to the failed financial institution, Lehman Brothers Holdings Inc. Later on, he worked for both Glencore plc and Xstrata plc before they merged in 2013. As well as advising Dow Chemical Co. and DuPont Co. in 2015 when Dow Chemical Co. and DuPont Co. was announced, making it the largest merger ever announced in the chemicals industry.

‍

In the days leading up to the collapse of Credit Suisse, Howard Ungerleider, the president of Dow, noted that he was all about finding a solution.

‍

Though Klein has a wealth of lucrative deals behind his name, he is probably best known for being a trusted adviser in the Middle East. He played a significant part in assisting Saudi Arabia's state-owned oil company, Saudi Aramco, to go public in 2019. It was the world's largest initial public offering, with a valuation of over $29 billion.

‍

As a result of Klein’s close ties to the Saudi royals, he has occasionally worked as an unofficial emissary for the Saudi royals. There were rumours that Klein steered a group of Wall Street executives into a receiving line for Crown Prince Mohammed bin Salman during the Future Investment Initiative conference in Riyadh in 2017 - the so-called Davos in the Desert, in order to assure that the prince would make a proper entrance to the event.

‍

Due to the fact that Saudis' investment in Credit Suisse has collapsed in value in a matter of months, it is likely that they will not be as friendly as they used to be. As a result of participating in a capital raising late last year, the Saudi National Bank ended up owning almost 10% of the Swiss bank. The Chairman of the SNB has recently resigned.

‍

Klein's investors, however, haven't always come out on top lately. Just take a look at the SPACs he's invested in, those big-ticket companies that flooded Wall Street with blank checks back in 2021. Today, many of them are suffering from underwater balance sheets. 

‍

In spite of this, Klein managed to make a considerable amount of money advising on his own deals, which he collected for consulting.

‍

In the wake of this latest episode, however, Klein is still set to profit more than $5 million a month from Klein's failed Plan despite the fact that nearly everyone involved with Credit Suisse walks away scarred.