Michael Klein, the chief executive officer-designate of Credit Suisse Group’s investment banking spin-off, may struggle to realise his dream of building a new CS First Boston as the Swiss lender nears a forced sale to UBS Group.

UBS is showing little appetite for Credit Suisse’s investment banking business as part of a government-brokered takeover, putting plans to legally and operationally separate and eventually list that business in doubt.

Klein and others had already been talking to interested parties as they sought to line up investors for the business. The last few days may force the acceleration of those efforts in an attempt to save the carve-out effort, according to people familiar with the matter. Credit Suisse said last year it has a US$500 million commitment from a potential backer in CS First Boston, but has never named the investor.

The riskier investment banking and trading operations have become a sticking point in the UBS takeover talks, Bloomberg reported earlier. In one scenario, UBS could seek to divest or unwind part of the investment banking operations, according to sources.

The efforts to separate the business that would become CS First Boston were still in early progress as a renewed crisis of confidence struck Credit Suisse last week. The spin-off has been a centrepiece of the troubled Swiss lender’s restructuring efforts and an attempt to protect and grow its best-performing investment banking businesses, such as advising on mergers and acquisitions.

Credit Suisse chief executive officer Ulrich Koerner said as recently as last week that the firm was looking at a potential initial public offering for the business in 2025, and that it had several parties that were interested in becoming investors. 

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Credit Suisse last year tapped board member and longtime dealmaker Klein to lead CS First Boston, and he stands to miss out on a large payday if the deal fails. He stepped down from the supervisory board, and recently sold his boutique investment firm to the bank in a US$210 million deal which is yet to close. 

In a break-up scenario, Credit Suisse may still seek to carve out the investment bank and could even seek to accelerate the effort, said one person briefed on the discussions of potential options. Such a move would likely be complicated and need regulatory buy-in, one of the sources said. The sources asked not to be named discussing the private talks. 

Another scenario would be that the parts of the investment bank that had been destined for First Boston end up in a bad bank, to be wound down, one of the sources said. 

Spokespeople for UBS and Credit Suisse declined to comment on the matter. A spokesperson for Klein did not have an immediate comment. 

The effort had captured the attention of Wall Street as a spin-out unprecedented in modern finance and a rare business model that featured a boutique-like advisory practice with the need for a bigger balance sheet to support its leveraged finance unit. Klein had promised a partnership-like structure that recalled an earlier era and gave star dealmakers a share in the upside.

Credit Suisse said in its annual report this week that senior leaders of the First Boston investment banking spin-off will own as much as a fifth of that business if it proceeds with plans for an initial public offering. Employees would be awarded restricted share units in CS First Boston, which would vest three years after the offering and be subject to a further holding requirement.

Between 50 and 100 existing CS First Boston managing directors would be up for partnership in the boutique’s new organisational structure, which will be similar to that of banks such as Goldman Sachs Group, executives said at a recent off-site meeting, according to people who attended the presentations. Bloomberg