Tidjane Thiam had reason to celebrate.

A grinding three-year turnaround at Credit Suisse Group AG was starting to pay off and the bank boss was hosting a new year’s drinks party.

Among his 60 or so guests were many locals from the Zurich suburb of Herrliberg, along with a clutch of top Credit Suisse executives and his new neighbors -- Iqbal Khan, the bank’s wealth-management chief, and his wife.

Before long, it all went wrong. A remark by Khan to Thiam’s partner set off a bitter feud between the two alpha males. The guest had insulted the state of the garden, according to a person who was there. Later, Thiam tapped Khan on the shoulder and asked for a word. The two went downstairs and argued before later resurfacing.

The dispute has reverberated ever since and reached a climax Tuesday. That’s when Khan started his new post at UBS Group AG, Credit Suisse’s bigger rival in Zurich, and Thiam’s board revealed the results of an extraordinary internal investigation into the embarrassing soap opera and the decision to spy on Khan after he quit July 1. The result: Thiam’s long-time top lieutenant lost his job, as did the bank’s head of security, and an unidentified consultant took his own life.

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A Credit Suisse logo stands on the roof of the Credit Suisse Group AG headquarters in Zurich, Switzerland, on Sunday, Sept 29, 2019. (Stephen Kelly/Bloomberg)

Succession

As the dust clears, the next act of the drama is set to begin. The focus could turn to Thiam’s future now that a potential successor is gone. Chairman Urs Rohner’s term ends in 2021.

“It would make sense for the board to start looking at succession now,” Urs Beck, a fund manager at EFG Asset Management in Zurich and Credit Suisse shareholder, said in a phone interview. “It wouldn’t be absurd for Thiam to become chairman.”

Before that happens, though, Thiam has some work to do to put the house back in order. His damage control began hours after a board reprimand and Rohner’s apology to employees, clients and shareholders.

The events are “deeply regrettable,” Thiam wrote in an internal memo.

“The surveillance of Iqbal Khan was strictly an isolated event and full accountability has been taken by the individuals concerned,” Thiam’s memo said. “Difficult questions about culture and ethical standards have been raised. The board moved swiftly to address these.”

The relationship between Khan and Thiam worsened in the months after the January blow up. In a corporate reorganization in February, Khan’s responsibilities stayed the same, even as two colleagues were elevated to the executive committee. Tensions mounted as Khan’s name surfaced in media reports as a candidate for the top job Julius Baer Group AG.

Exit Deal

So it was not a shock when the ambitious Khan bolted. The exit agreement he negotiated directly with Rohner allowed him to start his new job after just three months off, in contrast to the more typical six months -- as UBS imposed on its ex-investment banking chief Andrea Orcel.

It took just a few days for a tabloid scandal to emerge as a threat to Thiam and his team. A local blog, Inside Paradeplatz, reported on Friday Sept. 20 that police had arrested several people suspected of following Khan. Zurich prosecutors began an investigation stemming from Khan’s complaint. By the following Monday, Credit Suisse began its own investigation, moving to contain the corporate espionage drama.

The local headlines prompted one of Switzerland’s most senior bankers to weigh in. Oswald Gruebel, who led Credit Suisse and later its rival UBS, said Thiam deserved to be fired.

Shareholder Revolt

With each day, the stakes grew higher. Insiders suggested Thiam’s job was in jeopardy. That prompted a warning from the bank’s biggest shareholders, Chicago-based Harris Associates, not to make more of the incident than it warranted.

“It would be damaging to CS and its stakeholders to lose any member of senior management over this issue,” said David Herro, the firm’s deputy chairman. The plea got through; over a second tense weekend, with nothing leaking from the investigators, the law firm Homburger, the rumors from inside the bank suggested Thiam was in the clear.

That was confirmed in a press briefing Tuesday, shortly after news broke of the consultant’s suicide.

Chief Operating Officer Pierre-Olivier Bouee, Thiam’s chief lieutenant at three companies for more than 10 years, stepped down. Homburger concluded he was the one who issued the order for detectives to shadow Khan to ensure he didn’t poach clients and brokers for his new post at UBS. The bank said he informed neither Thiam nor the board of his intentions. He left with only the legally required severance, Rohner said.

Credit Suisse Says CEO Thiam Not Involved in Decision to Spy on Khan

Oct.01 -- Credit Suisse Group AG Chairman Urs Rohner speaks at a news conference in Zurich about the "personal differences" between Chief Executive Officer Tidjane Thiam and former employee Iqbal Khan which led to a “wrong and disproportionate” decision to spy on Khan.

Encrypted Apps

Bouee and the security team had communicated via an encrypted app, Threema. “They used that because of the confidential nature of their activities, said Flavio Romerio, the Homburger lawyer leading the investigation. “These Threema messages were only partly available to us, so we don’t have a full record of it. Mr. Thiam did not use the application.”

There was no contact between Thiam and Bouee involving the Khan surveillance on their WhatsApp messages or the internal Credit Suisse system, he said.

“One or two heads had to roll -- many asked for the CEO or the chairman, but that would have gone well beyond what was required,” Beck, the shareholder said. “They elegantly resolved a case that was inelegantly managed in the first place.”

As for Khan, he made no reference to recent events in a memo he sent to UBS colleagues on his first day there as co-head of wealth management. “As a leader and as a colleague you can expect me to be fair, passionate about clients and results oriented.”