Mack the Knife Cuts Himself Loose

Co-CEO John Mack fixed Credit Suisse's scandal-plagued CSFB. Now, his surprise exit could shake that hard-won stability

By Emily Thornton

On June 24, Credit Suisse Group (CSR ) Co-CEO John J. Mack shocked Wall Street by suddenly resigning, throwing the fate of the outfit's investment bank, CSFB, into question. In a news release, Credit Suisse announced that Mack, nicknamed "Mack the Knife" on Wall Street for his tough, no-nonsense management style, would not be renewing his contract, which will expire on July 12.

Oswald J. Grubel, the group's other co-CEO, will become the sole chief. The Zurich-based Grubel flew into New York for the announcement. And 44-year-old Brady W. Dougan, a protégé of CSFB's former head, Allen Wheat, will take over the investment bank's operations on July 13.


  Mack's departure is a huge blow to the group's investment bank, which has been involved in a massive restructuring since he took over three years ago. At the time, CSFB was arguably Wall Street's most troubled institution. It had become a symbol of the Street's initial public offering con game.

Regulatory authorities were cracking down on the firm for allegedly overcharging favored investors, who, in exchange for paying exorbitant fees, got shares in hot IPOs, many led by its former star tech banker Frank Quattrone. CSFB was also struggling with huge losses, largely as a result of bankers' lavish spending and pay packages. And it had bungled its $12 billion purchase of rival Donaldson, Lufkin & Jenrette, which resulted in bankers leaving CSFB in droves.

Mack made restoring CSFB's reputation his top priority. He told BusinessWeek in 2002 that his main goal was to make CSFB the Street's most ethical bank. To that end, he put the firm's regulatory problems behind it by settling IPO-related charges for $100 million, hired a cadre of compliance officers, and overhauled how CSFB pursued everything from IPOs to trades to loans to ensure that its clients' interests would come first.


  His efforts paid off: CSFB earned $1.7 billion in 2003, vs. a $1.3 billion loss in 2002. And it contributed $610 million to the group's net earnings in the first quarter of this year, up 39% over the same quarter of 2003. Perhaps just as important is that despite its past ethical lapses, CSFB was selected as one of the lead underwriters for this year's most coveted IPO -- Google's.

Despite Mack's successful turnaround of CSFB, rumors of a possible deal involving the firm have been swirling around the Atlantic for the last several weeks. One source close to Mack says the CEO's departure was related to a disagreement with the group's top executives in Zurich over Credit Suisse's future strategy. Mack believed the group needed to merge with another firm to reach the next level, and he had been in talks with several financial institutions, including Deutsche Bank, about different options, according to another source. But Zurich executives wanted to keep going it alone, and Mack, who was unwilling to move to Zurich, felt the group needed a sole CEO, a source says.

Mack could not be reached for comment in time for this story. Walter B. Kielholz, the group's chairman, said in the news release on June 24 that Credit Suisse is not interested in pursuing a merger "at this point."


  Mack's surprise move could throw CSFB back into turmoil. Before the announcement, there was a perception in parts of the firm that one of his recruits, Brian Finn, rather than Dougan, was Mack's heir apparent. "There could be serious fallout for people who were brought in by Mack after he leaves," says one source close to the firm.

And what's next for Mack? Even before the resignation, talk on the Street had it that he may be headed for a political appointment. Says a source close to Mack: "He's got a few things up his sleeve."

Thornton is Investment Banking editor for BusinessWeek in New York

Edited by Patricia O'Connell

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