Credit Suisse Deal With Michael Klein Raises «Serious Issues»

The purchase of former board member Michael Klein’s company by Credit Suisse is potentially explosive. Speaking to finews.asia, a voting rights advisor is demanding the bank put all its cards on the table when it comes to the deal.

Credit Suisse is on the verge of acquiring the company of ex-investment banker Michael Klein. According to reports, the price tag for the New York financial boutique, which essentially consists of Klein, will cost Credit Suisse more than $100 million. The transaction is causing a stir even before it has been finalized.

Not only is the sum high, but so are the deal’s potential conflicts of interest. Klein’s company M. Klein & Co. is to be merged with the Credit Suisse investment bank spinoff CS First Boston as a second step.

Klein was involved in signing off the plan for CS First Boston when he was still a member of the board of directors at Credit Suisse. Now he is the future CEO and co-owner of the spinoff. Mark Klein, Michael’s brother and himself an executive and shareholder of M. Klein & Co, is also expected to join CS First Boston as part of the deal.

«On both sides of the transaction»

The move is drawing criticism from investors as well. «The buying of the business of Mr. Klein by Credit Suisse, if confirmed, does raise serious issues in terms of corporate governance,» Vincent Kaufmann, CEO of Swiss shareholder rights advocacy group Ethos Foundation, said in response to a question. Kaufmann sees obvious conflicts of interest on several fronts since Klein was represented on both sides of the transaction.

Ethos demands the greatest possible transparency from the bank over the transaction. Kaufmann is pushing for the publication of the full fairness opinion and the results of «hopefully conducted» due diligence.

Intensive Haggling?

According to media reports, Credit Suisse is well aware that the deal is delicate. It has taken pains to avoid the appearance of conflicts of interest surrounding the transaction. Klein was absent from some board votes on CS First Boston, according to reports, and Credit Suisse is said to have haggled intensively over the price for M. Klein & Co.

Whether this will be enough to avoid another investor uproar remains to be seen after last December’s capital increase when existing shareholders had to accept a dilution of their investment of around one-third. The optics of using the fresh capital to help an ex-banker, likely already very rich, acquire even more assets are not good.

Against the Saudis

In recent years, the Ethos Foundation has emerged as a vehement critic of the ailing Credit Suisse. Recently, the Swiss voting rights representative opposed the entry of the Saudi National Bank into the bank’s shareholder base. Nevertheless, 92 percent of the owners at the annual general meeting last November approved the capital increase and thus also the cash injections from the Middle East.

Among the supporters were also the important foreign shareholder representatives ISS and Glass Lewis.