Morning Coffee: Credit Suisse bankers’ exciting escape is not happening. The worst investment banking conference, ever
They were apparently calling it “the escape pod”. Michael Klein’s First Boston spin-off was the venture which might have taken a lot of bankers away from the troubles of Credit Suisse, off to an exciting relationship with Apollo and some deep-pocketed sovereign investors, and away to do deals in the happy hunting grounds, with no legacy issues dragging them down and the possibilility of a “partnership” like split of the rewards. Now it appears that the last lifeboat is looking like just another piece of wreckage to cling to.
According to confidential sources quoted in the FT, Klein was quick to contact UBS and convey his understanding that the First Boston deal probably wouldn't happen given events. Current discussions are therefore simply a matter of negotiating a break-up fee with Klein, not trying to save the transaction. The FT says UBS management regard the original spin-off as having been “when the selling bank had a gun held to its head and we are no longer in that position”. Adding, just as a twist of the knife, someone 'close to UBS' says: “We are not here to enrich Michael Klein at the expense of our shareholders”.
Ouch. But for CS bankers, the news might not be too bad. If the incoming management suspected Klein First Boston of attempting to “cherry pick”, that implies that there are cherries to be picked. Ralph Hamers has confirmed that “Credit Suisse’s strength, particularly in the US and the technology sector, makes a very good fit to our strategy” and that they also want to retain advisory bankers in pharma, media and telecoms. This is surely good news for CS bankers in those sectors, although possibly not for Klein himself, who is more associated with deals like Saudi Aramco, and whose presence after the merger might be felt a bit too much of a painful reminder.
And there might even be scope for some strategic (if slightly unethical) behaviour. It’s not clear whether a definitive list of who was going to join the new venture was ever finalized. So it might be a good idea to get in early with the new UBS bosss, making it clear that you were on the “probables” rather than the “possibles”. At a higher level, MDs who want to underline their indispensability to the new franchise could indicate that they were among the people who were expecting to be offered “Partner” status at the new venture. Whether or not it works on the UBS bosses, it’s worth putting on the resume.
For other CS bankers, though, it seems like there may be no happy ending. As the great ship sinks beneath the waves, it appears that the sales and trading businesses are, for the most part, in the equivalent of steerage class along with back office staff who, in the words of one employee “don't sign up for any of this stuff”. Everyone’s getting paid to the end of the month, but after that there are no guarantees.
And unfortunately, if you’re paid to the end of the month, you have to work to the end of the month. Which is particularly painful if, like CS Asia, you have your flagship Investment Conference booked, with the hotel paid for. It’s awkward – a title like “Embracing Reality” must have seemed intelligent and conservative when the banners were printed, but like everything else (including a survival camp with Bear Grylls) it looks unbearably ironic now.
So the CS bankers have been sitting around eating canapés and drinking coffee, listening to the same joke about their corporate credit cards over and over again, as the clients look around for CS-branded swag that can be kept as a souvenir or sold at a profit on eBay. And although press invitations were cancelled, a lot of them showed up anyway, so the bankers can’t even reminisce together without suddenly being interrupted for a quote.
It sounds nightmarish. The only consolation will be that in the fullness of time, it will be an excellent anecdote. And whatever the near term direction of the CS bankers’ careers, the best place to be in times of stress is always in front of a client.
JPMorgan and Lazard are now in place at First Republic Bank, to “help with a review of strategic options” including a sale, breakup or capital raise. None of these are going to exactly be easy, and JPM has already begun to help out by organizing the show of liquidity support last week. These two banks now might get a chance to try to execute the sort of rescue transaction that Goldman Sachs couldn’t pull off for Silicon Valley Bank, in somewhat more difficult circumstances. (WSJ)
Slowly but surely, the top ranks of management in Millennium, Citadel and the other big “pod shops” are being filled out with former Goldman Sachs executives. According to a headhunter who has worked for Izzy Englander, they have a “pedigree”, as well as experience of “big problems, global problems typically” that you only get at a top tier bank. (Business Insider)
Bill Ackman seems to be tweeting a lot these days, about all sorts of issues but not usually his own stock portfolio. (Institutional Investor)
The WhatsApp scandal hasn’t quite reached the Holy See, but a senior archbishop has appeared in a Vatican City court, admitting that he instructed a former Italian intelligence officer to install monitoring software on the phone of the banker who had refused him a loan. Given where a similar spying scandal ended up for Credit Suisse, you have to be worried. (The Pillar)
A look at all the CS senior managers for whom UBS will feel like coming home. As well as Iqbal Khan, there is general counsel Markus Diethelm, who might guess that although his job has been filled in the ten months since he left UBS, there is probably enough litigation to be shared out. (Finews)
As office kitchens give up on single-use plastic to benefit the environment, a significant number of employees appear to have decided that this means you never need to buy mugs or cutlery again. (WSJ)
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