Shake-Up at Credit Suisse, Mühlemann Out, Keilholz New Board Chairman

September 20, 2002

Credit Suisse (CS), the parent company of U.S. investment bank Credit Suisse First Boston (CSFB) and the Winterthur Group, has ousted its Chairman and CEO Lukas Mühlemann, following a number of negative developments.

Mühlemann, the former Chairman and CEO of Swiss Re, was primarily responsible for the Group’s acquisition of Winterthur in 1997, shortly after he took over. In 2000 he acquired investment bank Donaldson Lufkin & Jenrette (DLJ) from France’s AXA Group for $12.4 billion. Neither acquisition has worked out.

Winterthur has continued to perform poorly. CS was required to provide 1.7 billion Swiss Francs ($1.12 billion) in additional capital to the insurer last June, and may have to put up more funds in the near future. It bought DLJ at the top of the bull market, and by most accounts paid way too much for it. A one-time leader in the junk bond investment field, it’s seen its activities decrease dramatically in the current global equity crisis.

Mühlemman will be succeeded as CS Board Chairman by Swiss Re CEO Walter Keilholz, who took over from Mühleman when he left Swiss Re. He intends, however, to retain his post at the world’s second largest reinsurer. CS will have two new CEO’s to replace Mühlemann.

Current CSFB head John Mack, the former president of Morgan Stanley, will share executive duties with Oswald “Ossi” Gruebel, who currently heads CS’s financial services unit.

The move prompted speculation that CS would eventually divest itself of CSFB, which in spite of giving the Swiss bank a powerful position in the American investment banking market, has cost it a lot of money. Such a decision might also be affected by the ongoing investigation by New York State attorney general Eliot Spitzer into alleged conflicts of interest by some of the bank’s stock market analysts.

Winterthur has already sold off some of its business, notably to XL Capital, and it too may be up for sale shortly. Analysts, however, doubt that CS could find a buyer for it that would be willing to pay anywhere near its value given the present depressed state of the global stock markets, particulalrly in the insurance industry.

Keilholz, Mack and Gruebel will certainly have to do something. CS shares have lost nearly two-thirds of their value so far this year, leaving many investors wondering what the banking group will do to try and improve its performance.

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