MICHAEL VON CLEMM END OF A LEGEND
Brash, inconsistent, occasionally brilliant, one of the veterans of the Euromarket, Michael von Clemm resigned in January as chairman of premier issuing house Credit Suisse First Boston. The only surprise is that it took him so long.
Von Clemm’s career hit a high point in 1979 when a haemorrhage of talent from the top of CSFB left the doctor of anthropology holding the twin titles of chairman and chief executive. Three stormy years with him at the helm changed the institution from a friendly Swiss-American hybrid into a hothouse bursting at the seams with creativity and internal strife. Battling through a succession of crises–losses of $20 million on one bond issue, allegations of malpractice, waves of defections–Von Clemm drove CSFB to the top of the league.
At the end of 1981 von Clemm lost the title of chief executive. His employers had recognized that he was a deal-maker, not a manager. “I’m a hunter; hunters like to bag,’ he said to Euromoney. For four more years he continued as a lone hunter, stalking mandates.
As von Clemm’s reputation grew in the world at large, his role within CSFB diminished. Indeed, when he left, there was little regret among certain prominent figures in the bank. One of them said: “His departure won’t make one iota of difference to the amount of business we do.’
But no other individual has contributed so much to the history of CSFB, except perhaps Robert Genillard, who founded the bank in 1970. “He [von Clemm] pushed the bank forward, in the second phase of its development, by broadening the range of its products and widening the gap between CSFB and the opposition,’ said Stanislas Yassukovich, who, as chief executive of White Weld and Co Ltd, as the bank was then called, hired von Clemm in 1971. “He was the principal architect of the partnership with First Boston, and since then, he’s been the firm’s most successful initiator of deals.’
Von Clemm became the public face of CSFB. He impressed most of the bankers and borrowers he encountered, with his intellect, his powerful personality and the breadth of his interests. This comment, from someone who worked with von Clemm at Citibank and CSFB, is typical: “Walt Wriston and von Clemm are the two greatest and two most impressive people I ever worked with.’
Outsiders, who often described von Clemm with superlatives, may be surprised to learn how much his reputation had waned within CSFB by the time he left. “Most of the bank felt a certain relief when he went,’ said a senior CSFB man. “He travelled too much; it had become an escape from actual business. Increasingly he saw politicians, and those who never did business–some wondered if he brought in his own salary and expenses.’
But von Clemm’s abrupt departure surprised CSFB executives. It’s hard to discover exactly why he went, because the bank imposed a news blackout on the affair. Von Clemm and Jack Hennessy, the chief executive who has now become chairman, both declined to meet Euromoney. Deputy chairman Hans-Joerg Rudloff, who runs the capital markets side of the bank, agreed to an interview but had to cancel it after an intervention by Hennessy. Euromoney contacted several CSFB executives and suggested speaking on an off-the-record basis. Most refused, not wanting to risk Hennessy’s ire, but a few agreed.
Von Clemm left amicably. There was no final, tumultuous row between the chairman, the deputy chairman and the chief executive. No-one pushed von Clemm, but nevertheless it can’t have been much fun for him to work at CSFB in recent years. Relations among the triumvirate who ran the bank were strained. Each thought the contribution of the other two was exaggerated–that foreign minister von Clemm’s meetings with the high and mighty brought in little business, that administrator Hennessy contributed nothing to the business, that capital markets chief Rudloff took the credit for the work of his juniors.
Rudloff had never done much to conceal his feelings for “the Americans’ at the top of CSFB. It’s widely reported in the bond market that Rudloff has said he hoped they would go. But now that von Clemm has gone, the statesmanlike Rudloff is saying what a loss he’ll be to the bank. “Rudloff has reached his aim, so he’s being magnanimous,’ said one of his colleagues in CSFB. “In the bank he doesn’t show how happy he is.’
The triumvirate also had to cope with tense relationships with the shareholders–First Boston, which has a 35% stake in Financiere Credit Suisse First Boston, the bank’s holding company, and Credit Suisse, which has 56%. Von Clemm did not like or respect Rainer Gut, chairman of Credit Suisse. The feeling was mutual.
A row between Gut and von Clemm over the part-flotation of CSFB hastened the latter’s departure. Von Clemm and other senior CSFB executives wanted to sell a proportion of the bank’s equity–perhaps 30%–on the stock market. This would both make the bank more independent of its shareholders and make the CSFB senior executives rich. These executives have shares in the bank, but at the moment the shares are worth only a pro-rata proportion of the net asset value of the bank. A flotation would greatly increase their value, because the public would be prepared to pay goodwill for a stake in a successful enterprise.
But Gut vetoed the idea, and von Clemm realized that he would not rake in the tens of millions of dollars that some Morgan Stanley partners are to gain from their flotation. It is not known how great von Clemm’s share in Financiere CSFB was, but well-placed sources in First Boston indicate that he may be taking out $5 to 7 million.
The fact that most of the key producers in CSFB have been hired or promoted by Rudloff must have made the bank a less attractive place for von Clemm. “Those who know him well are very sad he’s going,’ said one of the minority tendency within the bank, which remained loyal to him. “But now the bank’s grown to 550, compared with 60 ten years ago, and now the average age is 29, there are many who are unaware of his role and what he contributed. Our businesses today were started by Michael five to six years ago.’
But most in the bank are beholden to Rudloff. “Von Clemm wasn’t as profitable for the bank as he had been a few years ago,’ said one of them. “Travelling so much, he’d grown out of touch with the markets, so he’d become dependent on the executive directors for information. We had to feed him and look after him. But some executive directors were not very helpful. Because information didn’t always flow regularly, he could not always deliver with clients.’
It was in the 1970s and early 1980s that von Clemm made his contribution to CSFB. When Yassukovich hired him in 1972, he had already had a varied career. With a degree in anthropology from Harvard and a doctorate from Oxford, he had lived with the Wachagga tribe in Tanzania for 14 months. After a stint on the Boston Globe as a reporter, he joined Citibank in 1963. Sent to London, he worked on the creation of the Eurodollar CD market, together with Yassukovich at White Weld. Citibank launched the first issue in 1966. Von Clemm left to lecture at Harvard Business School, before arriving at White Weld in 1971, at first as a temporary consultant on the feasibility of a Euro-commercial paper market. White Weld and Schroder launched a few issues but the idea did not catch on.
Yassukovich left White Weld in 1973, and von Clemm was miffed that John Craven got the top job. After the first oil shock, von Clemm devoted a lot of his time to visiting cash-rich Middle Eastern institutions. His critics claim this brought little business to the bank. But von Clemm found his metier when he started to work on Euromarket products and new business. For the next ten years, von Clemm’s greatest contribution to CSFB was the development of client relations.
But his way of winning mandates was very different from the traditional charm and humility of a new business officer. He used his forceful personality to browbeat treasurers into using CSFB. “He used a machine-gun style,’ recalled a colleague. “He would say: “These are the 16 reasons why you should use CSFB.’ Unless you knew better than him–and most bank treasurers did not–you would be overwhelmed with the arguments.’ For many years Citibank and the UK clearers used CSFB for all their bond issues, and von Clemm would get them to try out experiments like drop lock, or capped, or short-term bond issues.
Von Clemm showed no fear of anyone. If a borrower had used a CSFB idea with another bank, he would call the chief executive, harangue him, and tell him CSFB would not show him its best ideas in the future.
Such a bold manner with clients usually paid off. But some borrowers reacted against von Clemm’s cold, sometimes arrogant approach. “He insulted you to make you do business with him; he made you think you were dim-witted if you didn’t use CSFB,’ said a bruised treasurer from one of CSFB’s most regular borrowers. “Once he wanted us to do a yen deal, to show the Japanese houses that they were not going to get all the lead managements. Michael spoke to us with a very direct, intense manner. You had to be strong-willed to deal with Michael; he didn’t suffer fools.’
If he upset a few clients, many more marvelled at the persuasiveness of the man. “He was particularly good with the financial sector–banks, merchant banks and development banks,’ recalled a colleague. “He was less good at industrial corporations, as he didn’t understand their business. Because of his intellect, he had little time for those less intelligent than himself, as many industrialists were.’
Von Clemm made CSFB into the banks’ merchant bank, by developing tailor-made products for them. In the mid-1970s he pushed tranche CDs as a product for Japanese banks. CSFB won a near-monopoly of this market, selling the CDs to retail clients.
But it was von Clemm’s championing of the bank FRN which made a lasting impact on the Euromarket. He did not invent the FRN. There had been a few issues in 1972, after which the market had sputtered out.
A colleague recalled how von Clemm had become enthusiastic for the product: “One day in 1975, we were sitting around doing nothing, because the fixed-rate market was dead. Suddenly Michael said that it would have to be the private banks which intermediated between Opec and the deficit nations. But the banks were funding all their new lending with short-term deposits. Michael saw that FRN’s could provide them with a more stable liability base.’
Von Clemm achieved a breakthrough with the BNP deal in 1975. Investors bought the issue despite its coupon of only 1/4%, much lower than on previous issues. A rash of similar issues followed. To this day, CSFB remains the top issuing house for bank FRNs.
These successes secured von Clemm’s position within the bank, and alongside Craven and David Potter he was part of the triumvirate which led Credit Suisse White Weld from 1975 to 1978 (White Weld had changed its name in 1975 when Credit Suisse increased its stake from 15% to 40%). The bank enjoyed something of a golden era: it was profitable and among the top three Eurobond houses, and the fact that the three leaders were friends made the atmosphere relaxed.
Merrill Lynch’s purchase of White Weld in 1978 disrupted the harmony at CSWW, which did not want Merrill as a shareholder. Another had to be found Chairman and chief executive Craven favoured Dillon, Read. But von Clemm wanted the then ailing First Boston. He went behind Craven’s back and negotiated with Credit Suisse’s Gut and First Boston’s Jack Hennessy. The deal was presented to the CSWW management committee, of which von Clemm was not a member, as a fait accompli.
Craven always claimed that von Clemm had stabbed him. Together with John Sanders and John Stancliffe, Craven resigned in November 1978 and went to Warburg. This English contingent feared that with First Boston as a parent, CSFB–as it had become –would be little more than a Eurobond house. They had wanted to mould the institution into a fully-fledged merchant bank.
Von Clemm became chairman and chief executive of the bank, and made the new tripod structure work. But the three years during which he held those titles proved the most difficult of his career, and of the bank’s history.
Even von Clemm’s friends admit that management was not his strong point. His brash, sometimes rude manner upset many within the bank. Colleagues of that time claim that he was inconsistent, sometimes offering the same job to several people and that he played people off against each other. They claim he would go behind a departmental head’s back to override a decision.
“Von Clemm’s management style changed the character of the bank,’ said one of the four managing directors of that period. “In the 1970s we’d had a good team spirit, but it stopped being an enjoyable place to work. You had to fight to get things done, and he liked to unsettle people.’
When von Clemm hired the prickly Rudloff to run the syndication department in early 1980, many existing staff were unsettled. Rudloff’s methods were new–he would price deals on his own, instead of in committee–as were his techniques, such as the bought deal. Von Clemm revived the technique–which Rudloff had developed at Kidder, Peabody–for a GMAC issue, and then backed Rudloff in a spate of bought deals in the spring of 1980.
“Von Clemm saw that bought deals were a way we could differentiate ourselves from other houses,’ said Michael Dobbs-Higginson, who worked on the first bought deals with Rudloff and von Clemm when he was at CSFB. “Large banks could not compete with us in making semi-instantaneous decisions.’
But CSFB’s bravura in making large commitments on its own ended in disaster. Rates had been moving down from March to June 1980, and as the trend began to break, CSFB bought a $150 million, 9 1/2% issue for EDC of Canada. “That bid was an exercise in pure machismo,’ recalled one CSFB executive. “Michael felt the big break in interest rates had come, others were more cautious.’
EDC’s treasurer, Blaine Modin, arranged the deal with von Clemm. Inside CSFB, there was confusion. “Normally at the daily directors’ meeting we were told details of all deals,’ recalled one. “But none of us were told anything about the EDC deal. Only Michael and Gut knew how and who took the decision to buy it. None of us knew where the issue was.’
Within 24 hours, rates moved sharply up. CSFB decided to protect the underwriters and take $127 million of the issue itself. But the amount was so large that the bonds were placed on the books of the CSFB/Credit Suisse group. As rates continued to rise, von Clemm and Rudloff were powerless to force the group to sell, although losses were billed to CSFB. Eventually the positions were unwound in the autumn and winter, but by then short-term rates were approaching 20%, which made funding costs expensive. A figure for group losses on the EDC bonds of $20 million has long been bandied about the bank, but several sources, then in senior positions at CSFB, have told Euromoney that the losses totalled $40 million.
No bank had ever lost more on a Eurobond, but no heads fell–for those responsible were at the top, and after all, no one knew interest rates would behave like that. But CSFB played on the EDC deal for its market image. Other houses were impressed by the bank’s courage in buying $150 million, then holding on to it. “Von Clemm was always trying to make us psychologically dominant over the rest of the market,’ recalled a colleague from that era.
Generally rising interest rates ensured that the bank made no money in the primary market in the three years von Clemm was chief executive–1979, 1980 and 1981. But a more pressing worry for von Clemm after EDC was the reaction of senior colleagues to Rudloff. Managing directors David Potter, Stephen Licht, Philip Sears and Fred Pettit (chief operating officer) disliked what they saw as Rudloff’s empire building within the bank. Potter left early in 1981. “I left primarily for the opportunity at Samuel Montagu, but also because the internal jockeying at CSFB inhibited business,’ he said. “The exit door never stopped revolving, which was wearing.’
These tensions exploded in February 1981, and nearly burst the bank. Rudloff alleged that the bank was improperly managed in specific areas. His critics replied with allegations that Rudloff had mishandled the syndicate account of one bond issue. They claimed the stabilization account had not been run on a fiduciary basis (for the benefit of the underwriters), but rather for the benefit of the lead manager. They also alleged that Rudloff was laying off loss-making positions to other Eurobond houses in an improper manner. Andy Pye, who worked in syndicate, and Pettitt demanded that von Clemm look into the allegations.
Von Clemm set up an internal committee to investigate, chaired by Sir John Riddell, a director. The committee concluded that the allegations were groundless. If there had been a slip up on the stabilization account it had been an accounting and systems failure –an area of the bank for which Rudloff was not responsible. And the fobbing off of bad positions on other houses was merely part of an accepted practice among the top lead managers who did each other favours.
But Rudloff’s critics were not satisfied. They claimed that there had been a whitewashing operation. They claim to have seen a draft version of the Riddell report, containing potentially embarrassing phrases which allegedly were deleted from the second.
Gut sent the group auditor to London to investigate the allegations against Rudloff, those made by him, and the bank’s systems.
This was followed by the arrival of Hans-Ulrich Doerig from Credit Suisse to take over as chief executive from von Clemm; the resignation of Pettit; the elevation of Rudloff to the board of Financiere CSFB; and the departure of two executives with whom Rudloff had clashed.
Von Clemm had never been interested in paperwork and the petty details of how the bank worked. During 1981 he had ceased attending management committee meetings. He left them to the four managing directors, who sent him the minutes. He upset them by often amending the minutes without consulting them.
But as a leader, if not an administrator, von Clemm contributed much to the bank, both before and after he gave up being chief executive. “He was a great motivator,’ said Pettit, who had been a close friend of von Clemm until the Rudloff affair. “He would hammer the table and shout at his executive directors: “I want some ideas by noon’, and they came up with them. He could achieve things from a group of people that others couldn’t. And he would never allow defeatism to creep into the organization.’
Von Clemm’s uncompromising personality stamped itself on the bank, with positive results. “It took someone with von Clemm’s lack of sensitivity to achieve the things that others would have shrunk from doing,’ said another former colleague. “For example, pushing his way into a chief executive’s office, or telling his directors he didn’t want wimping and whining. He wasn’t worried about upsetting people’s feelings. Michael’s way worked–CSFB became more dominant than it had been under Craven.’
Another former executive agreed that the management style had contributed to the firm’s success. “CSFB is at the top because it’s not an enjoyable place to work. There was no let up on the pressure. If you made a mistake, you were beaten up unmercifully.’
With Doerig, and after 1982 Hennessy, as chief executive, von Clemm was free to do what he did best–travel the world in pursuit of potential borrowers, and come up with strategic ideas.
“Michael is a great strategic thinker,’ said Potter, who was a close friend of von Clemm’s until leaving for Samuel Montagu. “He’s not a strategic planner who produces documents. He comes up with off-the-cuff thoughts, like hiring Dobbs-Higginson in 1973–although he had no experience– because he was fluent in Japanese.’
Potter said that von Clemm had great long-term vision. “I remember the day after Craven left, Michael said that we needed such a big market share that we could influence pricing. That was a breathtakingly simple strategy, and it succeeded in FRNs –we won mandate after mandate against other houses bidding cheaper.’
One significant strategic decision was to hire Rudloff, which von Clemm fought for against much opposition within the bank. The recent decision to push CSFB into the London docklands development at Canary Wharf –it was von Clemm’s idea–could also prove momentous. He has told friends that Canary Wharf would make as much money for CSFB as Eurobonds do now.
“Von Clemm was full of ideas, and of 10 ideas, 11 would be rotten, and the 12th would be one of the greatest–like CDs or FRNs,’ said Robert Strebel, head of trading of the CSFB group until last year. “He was not a book-keeper banker, the sort who would turn up on time for meetings. He wasn’t good at the details of where the money was being made, so long as it was being made. But he had tremendous imagination.’
Technical details concerned von Clemm less than CSFB’s image. He wanted an image that would differentiate CSFB from ordinary banks. Hence the Belgrade IMF conference in 1980, where von Clemm and his senior staff walked around clutching walkie-talkies. At the Toronto IMF meeting in 1982, his custom-built stretched limousine was a sight that people remembered. A signing ceremony for a Kingdom of Sweden deal in 1984 was held amid the Elgin marbles in the British Museum.
Von Clemm courted financial journalists because he knew they would influence the way bankers saw CSFB. He made a habit of calling journalists from a range of publications, dropping them stories and introducing them to interesting people. In return he expected that they would not publish negative news, without checking it with him. For example, when one well-known financial weekly commissioned a cartoon of von Clemm dressed as a waiter–he is chairman of the Roux Brothers restaurant chain–he reportedly intervened to stop its publication.
Sometimes von Clemm’s flair for self-publicity appeared to go over the top–at least in the eyes of British bankers. In the week before he resigned, the London Standard published a moderately hagiographical profile of him. Von Clemm had hundreds of copies made, and sent them out to leading bankers around the world.
Some who received copies found it embarrassing. “Like Staffan Gadd and Stani Yassukovich, Michael has always tried to gain acceptance with the Establishment,’ said one. “He never understood that that sort of self-publicity would excluded him. Similarly, he was always taking Establishment figures to Le Gavroche [restaurant] but he didn’t realize some of them found it vulgar. And he also plays real tennis.’
The comment may be unfair; spending over half the year travelling is hardly the best way to ingratiate oneself with the City’s elite. “Michael was always an outsider, who preferred to spend his evenings with non-financial people,’ said a friend. “A social climber would not have turned down the chance of a private audience with Prince Charles–as von Clemm recently did when asked to be president of the Foundation for the Preservation of the Archeological Heritage.’
Within the bank, many resented the fact that, to the outside world, von Clemm was CSFB. But von Clemm’s presence at the top has provided CSFB with cohesion in recent years, as defections have continued.
In 1982, Jacques Gelardin, Peter Luthy and Peregrine Moncreiffe left for Lehman, and David McCutcheon for Salomon. Then in January 1984, Licht, Dobbs-Higginson and Caleb Watts led a team of 10 to Merrill Lynch, partly in protest against Rudloff’s increasing power.
These departures upset von Clemm, because he had been close to Licht and Dobbs-Higginson. They went when he himself was planning to leave for a new venture. But he stayed to rebuild the damaged client relationships. Von Clemm now says that holding the bank together in 1984 was the greatest challenge of his career.
For a further two years the triumvirate hung together, despite frequent reports that one or other would leave. Hennessy lobbied for jobs in the US, either at the Treasury or the World Bank. Rudloff was said to have been close to joining Paribas in 1984. Then, the week after von Clemm resigned, Rudloff was seen talking to Deutsche Bank cospeaker Alfred Herrhausen in Annabel’s. He has spoken for some time of wanting to return to his family in Geneva, where he is building a new house.
The ambience of impermanence at the top of CSFB has not stopped the group from reporting record profits for 1985, of Swfr188 million, excluding hidden transfers. This was the sixth year running that profits had risen.
It is not clear what von Clemm will do, but he is unlikely to take another mainstream banking job. He may take a closer interest in the Isle of Dogs development, or seek public office. His interest in development problems–he is on the board of the East African Development Bank–could lead him to lobby for an ambassadorship to a country such as India.
Whatever he does, he will continue to have absolute faith in his own judgment and rectitude. Von Clemm’s self confidence– which has rubbed off on CSFB–has often allowed him to battle through problems. Fred Pettit recalled an incident in Manhattan in 1962: “Michael and I were walking down a street when we realized two toughs were following us. They carried bags of water which they intended to throw at us. Michael turned and faced them. Such was his presence, his stare carried the day, and they fled.’
Photo: The bought deal, popularized by CSFB, went flying too high.
Photo: Two years ago the CSFB team, after defections, kept the bank on top.
