FRANKFURT, Feb 9 (Reuters) – Credit Suisse (CSGN.S) has taken another step towards creating a standalone investment bank by buying Michael Klein’s advisory boutique, but gave few clues on Thursday about potential investors who might back the business with new capital.
The Zurich-based bank, which has reported its biggest annual loss since the 2008 global financial crisis, is resurrecting the First Boston brand and carving out the business with veteran banker Klein at the helm, as part of a comprehensive revamp announced in October to focus on wealth management.
The bank, trying to recover from a series of scandals, said it had agreed to buy the investment banking business of M. Klein & Company LLC, for $175 million.
Klein’s boutique will receive a note that pays annual coupons and converts into CS First Boston shares at a discount, the bank said, without elaborating.
The Swiss bank has said it is seeking $500 million from investors to launch the business.
In October, Credit Suisse Chief Executive Officer Ulrich Koerner said the bank had already a commitment from an investor without giving a name.
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“This investor is still very interested, and there are several more (with whom) we are in very close contact as we speak,” he said without elaborating further.
Apollo Global Management is among a group of financial firms considering investing in Credit Suisse’s revamped investment bank, a source with knowledge of the matter has told Reuters.
The plan has raised concerns from Credit Suisse shareholders over potential conflicts of interest.
Ethos Foundation, which represents Swiss pension funds that own shares in Credit Suisse, said the acquisition raised “governance concerns” and that little information had been revealed about the deal.
Ethos CEO Vincent Kaufmann told Reuters the amount paid seemed very high given the little information provided so far and highlighted that the company was founded and managed by Klein, member of the board of directors of Credit Suisse until October 2022 and designated CEO of the buyer (CSFB).
Credit Suisse has been marketing CS First Boston to investors as a “super boutique”. It sees revenue eventually more than doubling to as much as $3.5 billion, Reuters reported on Monday.
In a sales pitch to investors, dated January, the Swiss bank said it aspired to surpass the $2.5 billion net revenue target it set out only last October for the unit, taking into account the business will be independent and assuming “a normalised market environment.”
Still, given the “challenging market backdrop”, Credit Suisse expects its investment banking division – which includes some activities that may not move across to CS First Boston – to report a loss in the first quarter.
The bank said on Thursday that it aimed to achieve more than $2.5 billion revenues over time, and would potentially consider an initial public offering or spin-off of the business by the end of 2024.
The past year has been a lean time for investment banking. At Credit Suisse, revenue from advising on deals dropped 44% to 169 million Swiss francs ($184.34 million) in the fourth quarter of 2022 compared with the same period in 2021 as M&A activity froze globally.
At Swiss rival UBS Group AG (UBSG.S), revenues in its global banking division, which advises on M&A and IPOs, was driven down 52% by lower capital markets revenues.
Credit Suisse said it would keep control over the structure of CS First Boston.
CEO Koerner said: “The ties between the new Credit Suisse and CS First Boston are obviously super-deep and will stay super-deep.”
The Swiss bank bought First Boston in the late-1980s as it sought to expand in investment banking.
CS First Boston is associated with the past, not with the future, Ismail Ertürk, senior lecturer in banking at the University of Manchester, said.
Relationships are extremely important in boutique financial institutions, he added.
“The question is whether CSFB has strong client relationships.”
($1 = 0.9168 Swiss francs)
Writing by John O’Donnell and Stefania Spezzati; Editing by Elisa Martinuzzi, Mark Potter and Jane Merriman