What next for Michael Klein, would-be head of CS First Boston?

Where is Michael Klein? Senior bankers at Credit Suisse suggest he is AWOL. Nothing has been heard of their putative leader since UBS announced its acquisition of Credit Suisse on Sunday. The presumption, however, is that the CS First Boston super boutique that Klein was going to run and that was going to save everyone, is no longer going to happen.

“UBS will want to keep parts of our investment banking business, so it’s hard to see how the First Boston project survives,” says one London-based Credit Suisse MD. UBS CEO Ralph Hamers declined to be drawn on the CS First Boston issue during an investor call on Sunday, while the Financial Times says Klein’s confection is being reviewed and could be cancelled. Crucially, it’s not clear whether the deal to sell Klein’s boutique, M Klein & Co., was actually completed. Some insiders suggesting it was still in “Hail Mary mode” and can therefore easily be stopped.

Klein still has career options. If M Klein still exists, he could return to that stomping ground. Alternatively, he may yet be scooped up into UBS’s US investment banking business, which he might be semi-pleased about. However, a job at UBS would be something of a comedown from a world in which he was due to be king-maker at a super-boutique bankrolled by the Saudis and Apollo Global, with links to the giant balance sheet of Credit Suisse. 

Klein has long had his detractors, many of whom point to a court battle relating to his Spac endeavors last year. This accused the structure of Klein’s Churchill Spac as being “conflict-laden,” and ‘practically inviting’ “fiduciary misconduct”. The resolution of that court case is unclear, but people who had uncertainties about Klein previously and who held their tongues then are now wondering more volubly at his fate. 

“He’s flailing in the wind,” says one New York-based source.  “He gave up his board seat and will probably now try to take some of the guys back to something like M Klein & Co., but good luck raising money there now.”

Klein’s big issue is that he has almost certainly upset his supporters in Saudi Arabia. Having spent years building his reputation in the Kingdom, and having long benefitted from Saudi money in his Spacs, Klein was instrumental in persuading the Saudi’s to invest $1.5bn in Credit Suisse last November. The Wall Street Journal observes that it was Klein himself who orchestrated the Saudi investment and that Saudi Crown Prince Mohammed bin Salman insisted that it go ahead, despite the misgivings of his advisors. Now that the Saudi’s have lost $1.2bn on their stake, Mohammed bin Salman is less likely to view Klein kindly. 

It’s about more than just money, though. The Saudis also lost face in the UBS rescue, over which Klein appears to have had no control. The WSJ says they were left out of the loop during the weekend negotiations with UBS and only learned the outcome when they read it in the press. This was despite attempts at intervention: the WSJ suggests that a group led by Saudi National Bank, and potentially engineered by Klein, proposed injecting around $5 billion into Credit Suisse; the Financial Times says Credit Suisse chair Axel Lehmann, who was coincidentally in Saudi Arabia for a conference, pointed out that they were important clients of the bank. Ultimately, though, they were left on the sidelines. The final deal of CHF0.76 a share was greeted with “disbelief,” says the FT. 

Klein, therefore, may need to find some new backers, or simply accept a lowly position at UBS. The other option might be to hope that the Saudi’s come to view him more kindly in time. – After all, they brought this partly on themselves when Chairman of the Saudi National Bank, Ammar al-Khudairy, said last week that his bank would “absolutely not” provide more capital to Credit Suisse. In the following maelstrom, AT1 bondholders were wiped out to save the shareholders. The Saudi’s may have lost all but $300m of their stake, but at least they still have that, and who knows – they may partly have Klein to thank. 

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