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At two European banks, executives pursue power on their own terms

The dramatic exit of Iqbal Khan from Credit Suisse two years ago had all the elements of a gripping cinematic thriller. 

The Swiss lender’s former head of wealth management and heir apparent became embroiled in a spectacular feud with his boss (and new neighbour) Tidjane Thiam, defecting to rival UBS shortly before details emerged of a full-blown spying scandal that ultimately led to Thiam’s ouster.

Khan, it seems, has gotten his Hollywood ending. 

With his co-captain Tom Naratil, Khan’s efforts to restructure UBS’s ailing wealth business over the past 18 months — code-named Elevate — has kickstarted loan growth at the lender which had previously been pursuing a more conservative strategy.

Tom Naratil and Iqbal Khan have produced strong results for UBS so far © FT montage; Reuters, Bloomberg

The strategy helped solidify UBS’s position as the world’s largest wealth manager, with $3.6tn in assets under management. Since Elevate was first introduced, the unit’s invested assets have ballooned by $595bn — more than the total assets under management of Switzerland’s third-largest bank Julius Baer.

UBS has also lent an additional $49bn to its clients over the past 18 months, as more specialised, higher-margin lending becomes a small but growing part of the business.

“I don’t think it was rocket science what we did,” Khan told the FT’s Owen Walker in an interview. “It was all about how do you elevate the business based on the great foundation it already has.”

Column chart of Gross loans ($bn) showing UBS's wealth business is lending more to rich clients

But some have expressed worries that the strategy, centred on getting wealthy clients to borrow more, trade more and take on more sophisticated products invites the sort of risk UBS has been trying to get away from. 

The bank was hit with $861m of losses from the Archegos implosion and awaits a September 27 French court decision over whether it should pay up to €4.5bn in penalties for helping rich clients evade paying taxes.

Critics argue an approach that focuses on lending to UBS’s richest clients isn’t sustainable. “Elevate has been about grabbing low-hanging fruit up till now,” said a former UBS executive. “The big question is, what’s next?”

The success of Elevate could make or break Khan and Naratil in more ways than one. Both backed the arrival of Ralph Hamers as chief executive less than a year ago, but it doesn’t hurt to be in a good position for the top job when it next becomes open.

Line chart of Cost-to-income ratio (%) showing UBS's wealth business has higher expenses than rivals

Meanwhile at Khan’s old stamping grounds, the new chair António Horta-Osório is making moves of his own that could pave the way to Credit Suisse’s most coveted position. But why install yourself as CEO when you are already calling all the shots? 

In what insiders have described to the FT as a power grab that has diluted the authority of chief executive Thomas Gottstein, Horta-Osório has placed close allies on the board and executive team, and significantly expanded his own office and is taking a direct role in decision making. 

Horta-Osório’s new “tactical crisis committee”, set up to deal with the fallout from the Archegos and Greensill scandals, allows him to counsel Gottstein directly on risk management strategy, said people familiar with the matter.

António Horta-Osório has placed close allies on the board and executive team at Credit Suisse and expanded his own office while also taking a direct role in decision making © Bloomberg

Khan and Naratil are making waves at UBS by taking risks, while Horta-Osório has centred his strategy on mitigating them. DD is watching to see which approach prevails.

A $3bn Blackstone deal falls through 

Stephen Schwarzman knows his way around China better than most private equity tycoons. And his firm Blackstone, one of the world’s biggest real estate managers, is a top player in the commercial property market. 

So it was notable when Blackstone bailed on a planned $3bn commercial property deal in China on Friday, dropping its acquisition of Soho China. The company’s portfolio of prime real estate in the country’s top cities — including a Beijing office tower designed by Zaha Hadid Architects — could have been the centrepiece of Blackstone’s expanding footprint in China.

Stephen Schwarzman, co-founder and chief executive of Blackstone Group © Bloomberg

Blackstone announced the transaction in June, saying it was “thrilled” with the deal, which “reinforces Blackstone’s commitment to investing in China.” Schwarzman has spent years wooing the country’s elite, and used to act as a middleman for former president Donald Trump on his talks with China. 

Now, Blackstone and Soho China have said they won’t be able to receive antitrust approval in the agreed-upon timeframe and are pulling the plug — causing Soho China’s shares to fall as much as 40 per cent on Monday. 

Little information is available about what’s behind the announcement.

Is it because the mood music for Chinese tycoons has been turned on its head in recent months as president Xi Jinping pushes for “common prosperity”? Soho China’s founders Pan Shiyi and wife Zhang Xin have been accused online of being disloyal to their country by trying to cash out of their business and potentially move their money to the US. As China has become less hospitable to its top capitalist class, they’ve spent more time outside the country.

Chinese president Xi Jinping’s campaign against wealth inequality has driven regulatory actions targeting the ecommerce, education, fintech, ride-hailing and gaming sectors © AP

Or could recent difficulties at Evergrande, the heavily indebted Chinese property developer, given Blackstone cold feet about buying into the country’s real estate sector, even though it’s been a long-term theme for the private equity giant?

It’s not yet clear, though several people close to Blackstone said there were no indications that its interest in China was waning.

It’s likely that Blackstone picked up enough noises that the deal would not win government support — and decided to drop it sooner rather than later. “Anyone in their position would have done the same thing,” said the head of a rival private equity firm in Hong Kong. “For anyone who is trying to buy something substantial in China, there are now deep reservations about the regulatory approval.”

If DD readers have any insights into the manoeuvring on any of the sides here, please get in touch: due.diligence@ft.com.

The London lawyer accused of hacking his rival

Criminal lawyers are used to spending time in court — but generally not as the defendant in a trial. 

City of London lawyer Neil Gerrard, a retired white-collar lawyer from Dechert, has become more familiar with the inside of a witness box than most, however, having found himself at the centre of a series of lawsuits including one related to alleged torture and human rights abuses.

Last week Gerrard was accused of ordering an attempted hack on a rival law firm in order to uncover information about a case in which he is being sued by an alleged political prisoner. 

Stokoe Solicitors claims Gerrard orchestrated the hack to glean information related to the lawsuit brought by its client Karam al Sadeq, who has accused him and several colleagues of being responsible for his torture and illegal detention in one of the United Arab Emirates.

Stokoe Solicitors has accused Dechert and Neil Gerrard of seeking to obtain confidential financial information relating to a lawsuit brought by its client, Karam al Sadeq © Batson, Chris

Stokoe filed the claim against several private investigators last year and a UK High Court judge agreed to add Gerrard and Dechert on Thursday. 

Al-Sadeq claims Gerrard and Dechert orchestrated those abuses when working for the investment and development office of the government of Ras Al Khaimah, or RAK, where he is being held. His allegations are some of the most serious to have ever been levelled at a group of high-profile lawyers. Dechert and Gerard deny the claims. 

It’s just the latest legal woe for Gerrard, a former policeman-turned-litigator, who is also being sued by the US businessman Farhad Azima for alleged hacking in a related case, alongside Dechert — a claim the firm has also denied. 

Meanwhile, this month a lawsuit brought against Dechert, Gerrard and the UK Serious Fraud Office by Gerrard’s former client, the Kazakh mining company ENRC, reaches its final stage. Gerrard has been accused of wrongfully expanding a corruption investigation into ENRC in order to generate more in legal fees. 

Dechert has called that case a “fantasy” in legal filings. Closing submissions take place in September, but Gerrard’s legal battles look to be just beginning.

Job moves

  • The hedge fund TCI has nominated four new members to the board of Canadian National Railway after demanding that the group abandon its $34bn pursuit of Kansas City Southern earlier this month.

  • Bank of America chief executive Brian Moynihan has signalled that he plans to continue leading the US lender until the end of the decade. The bank on Friday announced a management overhaul including the following moves:
    Thomas Scrivener, who led operations at BofA’s consumer bank, will become the new chief operating officer;
    Alastair Borthwick, whose previous roles at BofA include president of global commercial banking and co-head of global capital markets, will take over from Paul Donofrio as chief financial officer;
    Sanaz Zaimi, head of fixed income of currencies and commodities sales, is out. 

  • Deutsche Bank has hired Isabelle Aussourd as a managing director in its French origination and advisory division, based in Paris. She previously served as HSBC’s interim head of industrials in advisory and investment banking coverage for North America.

  • BrewDog, the UK’s largest craft brewer, has appointed City grandee Allan Leighton as its chair three months after former staff accused the company of operating a “culture of fear”.

  • Citigroup has recruited Harry Naysmith as vice-chair of its south-east Asian banking and capital markets advisory business, per Bloomberg.

Smart reads

Dirty money Unlike banks and brokers, private equity firms and hedge funds have been held to looser standards when it comes to US anti-money laundering laws. The grey area leaves plenty of opportunities for bad actors to use Wall Street to their advantage. (FT) 

A lofty goal With talks of a European Super League off the table, Fifa executives have launched a controversial proposal of their own: hold the World Cup every two years, instead of four. A new battle of money and power is taking shape on the field. (FT)

Rule breakers Facebook says its content guidelines apply to everyone. But a secret program has enabled a select group of users to post rule-violating content. (Wall Street Journal)

News round-up

Beijing to break up Ant’s Alipay and force creation of separate loans app (FT + Lex)

Tencent and Alibaba pledge to open up apps to competitors (FT)

International advisers team up to capitalise on M&A boom (FT)

Vodafone and Birla fight to salvage Indian telecom joint venture (Nikkei Asia) 

Abu Dhabi plans Mid East expansion for UK special schools provider (FT)

Investment banks accelerate efforts to automate junior ‘grunt work’ (FT) 

Advent and Singapore wealth fund brew up joint £4bn bid for Unilever tea arm (Sky News)

Coinbase seeks to raise $1.5bn amid corporate borrowing binge (FT)

Live Nation Plans to acquire OCESA Entretenimiento in move into Latin America (Wall Street Journal + Lex)

Litecoin whipsaws after ‘illegitimate press release’ on Walmart tie-up (FT + Alphaville

Buyout firm Apollo makes $4.3bn offer to buy Tronox (Reuters) 

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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