Michael Klein plans merger with Credit Suisse investment bank

Former Citigroup executive Michael Klein is hunting for investors as he aims to combine his boutique advisory firm with Credit Suisse’s investment bank, which the Swiss lender has entrusted to its former board member as part of a radical restructuring.

Klein hopes to complete a deal for the newly formed CS First Boston by the middle of next year and plans to structure it as a spin-off and merger of Credit Suisse’s capital markets and advisory business with M Klein & Company, according to people familiar with the matter.

Credit Suisse will own a majority stake but Klein plans to acquire a substantial shareholding in CS First Boston, say the same people.

The move echoes a similar deal in 2014 when Blackstone spun off its advisory and restructuring business to create PJT Partners by combining with a tiny advisory boutique led by former Morgan Stanley dealmaker Paul Taubman.

Unlike that deal, however, Klein has been deeply involved in the restructuring of Credit Suisse and has been a member of its board since 2018. He led the review of the Swiss bank’s investment banking business and his firm, which employs just over 20 staff, advised on the decision to spin off the investment bank.

On Thursday, Credit Suisse unveiled a strategic plan that involves cutting jobs, carving up the investment bank and bringing in outside capital.

Internally the plan was given the code name Project Africa, say people involved, with each element named after an African country. The capital raise, for example, was known as Ghana, while the sale of the securitised products group to Apollo and Pimco was called Egypt.

As part of that plan Credit Suisse said that Klein would become chief executive of a spun-out CS First Boston and step down from its board.

Credit Suisse chair Axel Lehmann said the board was “very mindful of conflicts of interests” when discussing plans for the investment bank, with Klein abstaining from decisions where he had a personal interest.

The Credit Suisse board only approached Klein about running CS First Boston just days before the plan was announced, according to the same people.

Chief executive Ulrich Körner said the bank had already received a $500mn commitment from one large investor for CS First Boston, while the Saudi National Bank — which has agreed to buy SFr1.5bn of shares in Credit Suisse — has also said it could invest.

Other investors are being recruited, with one plan envisioned by Klein involving Credit Suisse reducing its shareholding to below a majority stake through sales and through an initial public offering, say the people. A portion of equity will be reserved to retain and attract top bankers to join the firm.

Several high-net worth family offices and investment vehicles have been approached by Klein to invest in CS First Boston, according to people with direct knowledge.

For Klein, the deal would herald a return to the top of a high-profile Wall Street business after his 2008 departure from Citigroup, where he was once considered a chief executive candidate and a protégé of its former leader Sandy Weill.

Since his Citigroup exit, Klein has maintained a relatively low profile, acting as an adviser to chief executives, corporations and governments on major transactions. M Klein & Co only recently added a sparse website.

Klein has advised Barclays on its purchase of Lehman Brothers during the financial crisis, helped to broker the deal between mining groups Glencore and Xstrata, worked on the huge Dow-Dupont merger and has built close ties in Saudi Arabia. He was one of the kingdom’s advisers on the Saudi Aramco initial public offering and has worked closely with sovereign Public Investment Fund, which is one of the largest shareholders in the SNB.

In recent years, Klein set up Churchill Capital, which he used to put himself at the forefront of the Spac boom, launching multiple vehicles during the pandemic and using them to merge with several private companies. Churchill Capital will not become part of CSFB and will remain independent.

CS First Boston is aiming to compete with Wall Street’s leading boutique advisory firms such as Evercore, Moelis and PJT Partners. However, it will also have equity and debt underwriting capacity and its own balance sheet, making it more akin to a bank like Jefferies.

Revenues at Credit Suisse’s investment bank are down 58 per cent compared to last year, when the bank benefited from the Spac boom, reflecting the opportunity for Klein.

The plan to do this deal has been in hyperdrive since June, when the bank conceded among its senior leaders it was subscale to bulge bracket competitors such as Goldman Sachs, JPMorgan and Citi in trading or corporate banking.

Credit Suisse and Klein declined to comment.

Additional reporting by James Fontanella-Khan