A Swiss hedge fund's proposal to split up Credit Suisse was largely dismissed. The Swiss bank's largest shareholder knows the activist investor from a previous engagement and is thawing to some of the newest ideas. 

Rudolf Bohli, a Zurich-based hedge fund manager, is set to details his ideas for splitting up Credit Suisse at a brokerage conference in New York on Friday. The rough outline has already leaked out: Bohli wants Credit Suisse to carve itself up into an investment bank and wealth management and asset management arms. 

The idea, supported by Credit Suisse's former investment banking co-head Gaël de Boissard, was rebuffed by Credit Suisse, which wants to conclude the last year of its three-year restructuring. Investors and analysts were also quick to dismiss the idea, saying it low-balls the complexity of a split-up while overestimating what such a move could bring. Bohli has said a split-up could double the firm's worth to 80 billion Swiss francs.

Thawing To Ideas

David Herro was one of the first to slam the plan. As Credit Suisse's largest shareholder, the fund manager at Harris Associates holds a 9 percent stake in the Swiss bank. 

Credit Suisse stock is undervalued, Herro said on Tuesday, but he backed the bank's CEO Tidjane Thiam's efforts. Bohli doesn't have enough skin in the game to make his case, Herro criticized.

One day on, Herro appeared to have warmed to the hedge fund's ideas. Bohli's fund, RBR Capital Advisors, «does have some points that require a second thought,» he told the «Financial Times» (behind paywall) just 24 hours later.

Revive First Boston 

What points? Herro liked Bohli's idea to split off the investment bank. «Some things . . . like re-domiciling the investment bank to a more friendly region, where the capital requirements aren’t so stringent, where the regulatory requirements aren’t so stringent, some of these things management should be taking a look at,» the Chicago-based fund manager said.

According to Bohli, moving Credit Suisse's investment bank out of Switzerland would release 16 billion Swiss francs in capital – more than half of current shareholder's equity. The new seat would probably be New York, since Bohli wants to reload the First Boston brand, which was folded into Credit Suisse in 2006.

Unlikely Duo

Herro's sudden support of Bohli's idea isn't surprising – the fund manager has a fiduciary responsibility to look at any options which could bolster performance for his clients. Less well-known are the previous ties between the big shareholder and the activist: both were shareholders in Gategroup, now part of China's HNA conglomerate.

Bohli pushed through board changes at the Swiss aviation catering firm, and won Herro – and Harris' firepower – as a key ally. To be sure, the ties between the two are loose and the roles are clearly delineated: Bohli is the punchy hedge fund manager with good but not always entirely well-thought-out ideas. Herro is the rational investor with realistic projections – but above all considerably more stock and more influence.

Hedge Fund Schooled

During the takeover of Gategroup, for example, Herro schooled the fervid Bohli over the latter's demand for HNA to pay 100 francs per share by saying he had no idea how the hedge fund manager had arrived at the valuation.

Fifty francs per share would be sensible, Herro said. Ultimately, Bohli buckled and sold his shares at 50 francs per share. 

On Credit Suisse, the ball is in Bohli's court. After initial details of his plans leaked out, the hedge fund manager could fine-tune his case for a split-up before presenting on Friday. With a focus on moving Credit Suisse's investment bank out of Switzerland and reviving the storied First Boston brand, Bohli and Herro could draw more followers.