Credit Suisse’s Investment Bank Is Slowly Disappearing

Credit Suisse’s investment bank may vanish

When UBS agreed to buy Credit Suisse at a fire-sale price over the weekend, a big question was what would happen to the ailing firm’s investment bank. Months before the chaos that felled Credit Suisse, the firm had unveiled an ambitious plan to spin out the division, under the leadership of the veteran deal maker Michael Klein, as part of its now-failed turnaround effort.

But it now looks like the investment bank will largely be dissolved, as UBS makes clear that it’s only interested in bits of the business, and as the Swiss government moves to bar some promised payouts to Credit Suisse’s bankers. What was once a top-flight shop of corporate advisers now appears to be a melting ice cube.

UBS probably won’t proceed with the Klein-led spinout, cutting off the most likely way of preserving big chunks of the investment bank. Under those plans, Credit Suisse would have purchased Klein’s advisory boutique, combining it with its own division and eventually spinning it out under the First Boston name. (Klein, who was on Credit Suisse’s board, would have received $175 million for his firm and was paid an additional $10 million for advising on Credit Suisse’s plan — terms that some at UBS reportedly saw as too favorable.)

UBS is now weighing whether to end that deal and how it would do so, DealBook hears. The writing had been on the wall since the takeover announcement: First Boston would have relied on capital from Credit Suisse to help fund equity and debt underwriting, and the UBS deal now makes that impossible.

UBS has expressed interest in keeping some Credit Suisse investment bankers in key industries — technology, media and health care, among others — to augment its own advisory operations and complement its core wealth management business. But UBS executives have made clear they plan to run down Credit Suisse’s trading operations and limit the size of its overall investment banking arm.

Meanwhile, other Credit Suisse bankers have fewer reasons to stay. Unless they specialize in those particular sectors, their chances of being absorbed into UBS are murky at best.

Moreover, the Swiss government said yesterday that it would suspend deferred bonuses for Credit Suisse employees that were granted before 2022. (The bank can still pay cash bonuses for last year.) That compounds the pain for Credit Suisse staffers, who have already seen the value of their shares in their employer — as well as bonuses in the form of other securities linked to the bank’s performance — all but wiped out by the UBS deal.

This may make it harder for Credit Suisse to operate as though it’s business as usual, especially as anxious bankers call up recruitment firms to find jobs elsewhere.

HERE’S WHAT’S HAPPENING

An unexpected surge in inflation in Britain complicates a move on interest rates. Consumer prices there rose 10.4 percent in February compared with a year earlier, accelerating after months of slowing down. That may undermine expectations that the Bank of England was close to halting rate increases as part of its inflation-fighting efforts; the central bank will announce its next policy decision tomorrow.

China and Russia’s leaders deepen economic ties to blunt Western pressure. The leaders of the two countries, Xi Jinping and Vladimir Putin, pledged to increase both Russian energy available to China and Chinese investment in Russia at the end of a summit in Moscow. The move underlines Moscow’s increasing dependence on Beijing amid the war on Ukraine.

U.S. housing prices fall for the first time in 11 years. The national median existing-home sale price fell 0.2 percent in February from a year ago, the first year-on-year decline since February 2012. Overall sales of existing homes were down 22.6 percent from a year ago. The figures reflect the consequences of the Fed’s interest rate increases, which have raised mortgage costs.

TikTok’s C.E.O. will pledge to safeguard the data of U.S. users. In prepared remarks for congressional testimony tomorrow, Shou Chew will say that the video app’s platform “will not be manipulated by any government.” Separately, Shou said in a TikTok post that politicians want to take the app away “from all 150 million” of its U.S. users; here’s why actually doing that would be difficult.

Fox and Dominion push for a quick decision on a $1.6 billion defamation case. Lawyers for both encouraged the judge presiding over the election technology company’s lawsuit against Fox News to issue a summary judgment. That would swiftly resolve the case, which revolves around claims that Fox News knowingly spread false claims of voting fraud in the 2020 presidential election.

Google’s cautious entry into the chatbot race

Google finally released its A.I. chatbot to the public yesterday, after spending months watching OpenAI’s ChatGPT and Microsoft capture the public’s imagination with their offerings.

The public testing of Google’s chatbot, Bard, which is available to some users in the U.S. and Britain, is an intentionally muted rollout that’s meant to show Google is in the A.I. game.

Google is playing catch-up, despite having made A.I. a priority for years both within its own labs and at its DeepMind division. But ever since the release of ChatGPT in November, and then Microsoft’s unveiling of a ChatGPT-powered Bing search engine two months later, Google has been on the defensive.

It went so far as to declare a “code red,” making A.I.-infused products a priority to keep rival services from eating into its core search-engine business.

How does Bard compare to ChatGPT? Google emphasized that its chatbot is an experimental product that will operate separately from its search engine. Bard can deal with simple tasks and questions, and it acknowledges what it can’t do or when it makes mistakes, The Times’s Cade Metz reports. That reflects Google’s more cautious approach, after competitors were criticized when their chatbots gave incorrect advice or behaved unpredictably.

But the results are hit-and-miss, according to The Verge: While Bard is faster than its rivals, it still suffered from errors, and it lacks Bing’s extensive footnoting. Google’s also likely less than pleased that Bard reportedly declared that the company has a “monopoly on digital advertising technologies.”

Will Trump be indicted today?

A grand jury in Manhattan could indict former President Donald Trump as soon as today, and he has told supporters that he expects to subsequently be arrested. The prospect of Trump, who is running for re-election, being handcuffed is extraordinary.

No sitting or former president has ever been indicted, and only one has been arrested: Ulysses S. Grant, who was apprehended in 1872 for speeding in his horse-drawn carriage.

The back story: Trump is accused of paying $130,000 in hush money to the porn star Stormy Daniels via his former fixer, Michael Cohen. Prosecutors believe the secret payment at the end of the 2016 presidential campaign was intended to cover up a sexual encounter. (Trump has long denied any such encounter.)

In 2018, Cohen pleaded guilty to federal campaign finance crimes involving the payment to Daniels and pointed the finger at his boss. Manhattan prosecutors began investigating whether Trump’s business improperly accounted for this and other payments to Cohen by classifying them as legal fees.

In New York, falsifying business records can be a misdemeanor. To elevate the crime to a felony, prosecutors must show that the defendant’s “intent to defraud” included an intent to commit or conceal a second crime. In Trump’s case, that second crime could be violating election law: Prosecutors could argue that the payout was an improper donation to his presidential campaign because it benefited his candidacy by shutting down a potential sex scandal.

Proving any charges could be tough. Legal experts told The Times that New York prosecutors have never before combined the charge of falsifying business records with a violation of state election law in a case involving a presidential election, or any federal campaign. A judge could dismiss or reduce the charge.

If Trump were ultimately convicted of a felony, he would face a maximum sentence of four years in prison, though prison time would not be mandatory.

Can Vice be saved?

Seven years ago, Vice was the hottest media start-up around, drawing both takeover interest from Disney and an investment that valued it at $5.7 billion. But the company has since faltered badly: It has fallen short of revenue targets, lost Nancy Dubuc as its C.E.O., faces claims of missed payments to vendors and more.

From Claire Atkinson’s in-depth piece for Insider:

Ad-platform relationships with the likes of Facebook, Google, Snap and TikTok would consistently get to the point of shut-off, the former insider said. Another staffer told Insider his company credit card had temporarily stopped working, echoing reports elsewhere of a severe cash crunch.

Vice’s future is expected to be resolved in the next two months as shareholders and employees face a few scenarios: a sale to another company, a breakup of the assets or a bankruptcy.

One suitor, Group Black, has offered just $400 million to acquire the company, but Atkinson reports that there’s another potential buyer: Shane Smith, the Vice co-founder who is now said to be negotiating with an existing investor about a takeover bid.

THE SPEED READ

Deals

• Manchester United has reportedly set 9 p.m. British time as a deadline for a second round of takeover bids for the English soccer club. (BBC)

• Virgin Orbit, Richard Branson’s satellite-launching start-up, is said to be near a deal for a $200 million investment led by the venture capitalist Matthew Brown. (Reuters)

Policy

• Mike Bloomberg has donated $5 million to help Gov. Kathy Hochul of New York as she negotiates the state’s budget. (NYT)

• A group backed by Ben Cohen, a founder of Ben & Jerry’s, is behind a public campaign to pressure the U.S. to end military support for Ukraine. (Daily Beast)

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