Credit Suisse to Decide on Executives’ Fate Early Next Week

(Bloomberg) -- Credit Suisse Group AG’s board is set to decide on the fate of top executives implicated in the surveillance of former wealth management head Iqbal Khan early next week as it seeks to find out who was responsible for the bank’s most embarrassing scandal in recent years.

Law firm Homburger is in the final stages of a probe into the spying operation, people familiar with the matter said. One of Switzerland’s top corporate law firms, it’s spent recent days interviewing bank officials and reviewing whether the surveillance was justified, legal and ethical, the people said, asking not to be identified as the matter is private. It’s also probing whether a rift between Khan and Chief Executive Officer Tidjane Thiam harmed the bank’s reputation.

The bank’s board of directors will likely meet early next week on the issue after receiving the final report from Homburger, the people said. Credit Suisse expects to finish the investigation by the end of this week, Bloomberg reported on Wednesday.

The drama at Credit Suisse has transfixed Zurich financial circles since it emerged that the bank hired a private investigation firm to shadow its former employee because of fears he would poach former colleagues after deciding to move to UBS Group AG. A confrontation in downtown Zurich last week between Khan and investigators now risks the reputation -- and perhaps the jobs -- of both men.

Chairman Urs Rohner, who has tasked board member John Tiner with leading the internal probe, will move swiftly to take punitive action against the institution’s senior officials if they’re found to be responsible, a person familiar with the situation said, asking not to be identified because of the sensitivity of the matter.

A spokesman for Credit Suisse referred to a statement from the board on Monday which said: "As soon as the investigation is completed, the Board of Directors will inform of its findings. Until this time, no further information can be released." Homburger declined to comment.

The situation has sparked an open debate about how the bank should respond if reports about it prove to be true.

Investor’s Faith

“We are fully supportive of CS’s management actions taking any legal steps necessary to protect the company and think it would be damaging to CS and it’s stakeholders to lose any member of senior management over this issue,” said David Herro, deputy chairman of Harris Associates, one of the bank’s top shareholders.

By contrast, former Credit Suisse and UBS Group AG chief Oswald Gruebel said Thiam should be fired if the reports are confirmed, particularly if the scandal had its roots in a personal conflict between the CEO and Khan.

For Thiam, the scandal has broken a period of calm after he navigated a three-year restructuring that saw him pare back volatile trading in favor of wealth management. Khan, brought in to revamp UBS’s wealth management business and perhaps become a contender one day for the top job, became increasingly important to the bank after a series of senior departures. The recent scandal raises questions about how his relationship with former boss Thiam unraveled.

Heated Words

Tensions between Thiam and Khan mounted in January during a party at Thiam’s house in the upscale neighborhood of Herrliberg outside Zurich when the two men had an argument, people familiar with the situation have said. When a corporate reorganization came in February, Khan’s responsibilities stayed the same, even as two colleagues were elevated to the executive committee. The rift widened as Khan’s name surfaced in media reports as a candidate to replace Bernhard Hodler as head of Julius Baer. That job eventually went to Philipp Rickenbacher, a little-known internal candidate.

Khan left Credit Suisse almost three months ago, and UBS in August enlisted him for a key role at its wealth-management business as part of a wider shake-up.

But the drama continued after Credit Suisse hired the private investigator to shadow its former employee. Khan was followed by unidentified men while driving his car with his wife last week, several people briefed on the events said previously. He eventually noticed that he was being followed and took pictures of his pursuers, which led to a physical confrontation when the men tried to take away his mobile phone, the people said.

A report from the private security firm hired by Credit Suisse paints a different picture. Investigo GmbH, which offers cash collection, investigations and security services, said its employee was acting alone and “defensively,” contradicting earlier accounts.

--With assistance from Eyk Henning.

To contact the reporters on this story: Jan-Henrik Förster in London at jforster20@bloomberg.net;Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Jan Dahinten

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