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Credit Suisse overhaul draws scrutiny from some investors over governance

November 12, 2022 00:00:00

LONDON/ZURICH, Nov 11 (Reuters): Credit Suisse's recent decision to exit certain investment banking activities is drawing scrutiny from at least two investors and a proxy adviser who told Reuters they are worried about how the Swiss bank managed potential conflicts of interest of two directors.

The move to break up the lender and spin off the investment banking business was seen by analysts as a way for Credit Suisse to focus on its more profitable wealth management franchise. But the investors are questioning how some of the decisions were taken.

Board member Michael Klein had begun working on the turnaround with Chairman Axel Lehmann and other Credit Suisse officials in early February, according to a person familiar with the situation.

In late October, Klein stepped down from the board to work on the division that will be spun off and rebranded CS First Boston. He is set to become CEO of the unit in 2023, pending regulatory approvals. The company will be a preferred long-term partner for Credit Suisse, the bank has said.

Ethos Foundation, which represents Swiss pension funds that own more than 3 per cent of Credit Suisse, told Reuters the bank needs to show it conducted a thorough search when it picked board member Klein to run the investment bank unit.

"We wonder whether the board conducted an adequate recruiting process" for the investment bank chief, Ethos CEO Vincent Kaufmann said by email on Monday.

In addition, Roger Said of proxy adviser Actares, which works for individual investors including Credit Suisse shareholders, told Reuters there is the risk that both Klein and Blythe Masters, another bank board member who also advised on the reorganization, "could profit at Credit Suisse's expense."

Klein recused himself from board discussions and voting after he was informally offered the CEO job on Oct. 21, just six days before the reorganization was announced, said the source familiar with the situation.

Credit Suisse declined to comment beyond Lehmann's remarks Oct. 27 when the bank unveiled the restructuring. "It goes without saying (we are) very, very mindful of conflict of interest," Lehmann said then in relation to both Klein and Masters.

Since 2021, Masters has also served as a consultant to Apollo, the US buyout fund which Credit Suisse picked as the preferred buyer of one of the bank's trading businesses. Apollo has invested in Motive, a New-York-based investment company founded by Masters.

Spokespeople for Klein, Masters and Apollo declined to comment.

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