Credit Suisse Executive To Face Harsh Criticism Fri AGM

By ANITA GREIL

of DOW JONES NEWSWIRES
ZURICH -- Credit Suisse Group (Z.CSG) Chairman and Chief Executive Lukas Muehlemann will face his toughest annual shareholder meeting Friday since adding chairman to his title two years ago.

Investor distrust in the bank's top management has grown amid a series of scandals. The extent of this dismay will become known when investors vote on a proposal put forward by two dissident shareholders that would force Muehlemann to surrender one of his posts.

Muehlemann's dual title has come under fire in part because investment bank Credit Suisse First Boston has repeatedly made headlines for getting into conflict with regulators, a consequence of its rapid expansion in the late-1990s.

Shareholders are critical of Muehlemann's decision to buy U.S. investment bank Donaldson, Lufkin & Jenrette at the top of the market in 2000.

The 52-year-old executive has also been accused of conflict of interest during the collapse of Swissair . He sat on the board of the airline's parent that filed for bankruptcy protection last autumn while the bank proposed a rescue package for the airline. Swissair later accused the Credit Suisse and UBS AG (Z.UBS), which participated in the rescue package, of being responsible for grounding the airline.

Muehlemann has repeatedly rejected these allegation, saying he wasn't involved in the Swissair talks.

More recently, Muehlemann has been rebuked for sitting on the board of an Argentine bank that is under investigation for fraud. Credit Suisse says said that it regret its involvement with Banco General de Negocios.

Despite the controversies, the proposals of the shareholder activists are expected to be voted down. Most shareholders pass their votes to asset managers who usually support the board.

But the dissident shareholders have already achieved one goal - a public debate on the adequacy of having one person as both chief executive and chairman.

"We aren't under the illusion that our resolutions will pass, but we do want to raise the issue because, if it's being talked about, a change in the direction we want will happen more quickly," said Martin Eisenring, an attorney and corporate governance analyst at the Ethos fund, one of the dissident shareholder groups.

The Ethos fund manages the assets of several Swiss pension funds and mutual funds for other institutional investors and private clients. It led a similar shareholder push on Zurich Financial Services (Z.ZFS) that resulted in the resignation of Chairman and Chief Executive Rolf Hueppi.

Credit Suisse recorded a 73% drop in net profit to CHF1.6 billion last year due to weak financial markets, charges related to Enron Corp. (ENRNQ), Argentina's financial crisis, and the cost of settling a regulatory case involving alleged abuses in allocations of initial public offerings.

"Credit Suisse clearly underperformed rivals, and the company is in a difficult situation," Eisenring added. "Having a second person to control management decisions is important."

Credit Suisse shares have dropped 17% so far this year, compared with a 2.9% drop at Swiss rival UBS AG (Z.UBS) or an 8.8% decline in all listed Swiss banks. Shares of rival Deutsche Bank AG (G.DBK) have dropped 4.3% over the period.

Money For Stock Options Scrutinized

Eisenring's fund is also concerned about the rising amount of capital that Credit Suisse is putting aside for stock options and share purchases that are part of incentive plans for employees.

The bank has reserved nearly 10% of its capital for this purpose, a portion the fund considers too high for a mature company like Credit Suisse.

"This is too much and not acceptable for shareholders," Eisenring said.

The fund also criticizes the lack of details about the incentive plans and the conditions attached to stock and share purchase programs. It also notes Credit Suisse's failure to disclose the names of the beneficiaries.

This contrasts with Deutsche Bank which reserves only around 4% of shareholders' capital for remuneration purposes and gives detailed information on the incentives plan, Eisenring said.

"We are really concerned that the remuneration packages are setting the wrong incentives - Credit Suisse has been involved with every dirty story of the last few months, especially Lukas Muehlemann who was personally involved in the Swissair and the Banco General de Negocios scandals,"

Eisenring said. Such outspoken criticism is a new development in Switzerland
and comes amid a raft of scandals at Swiss corporations over the last year,
which has given rise to calls for more corporate governance. Shareholders,
politicians and the media are concerned that the unification of the strategic
and operational top posts results in too much power in one person's hands and
too little supervision.
The public debate focused for a long time on Zurich Financial's Rolf Hueppi, who gave in to shareholder pressure and quit earlier this month.

Ethos led shareholder pressure on Hueppi to drop one of his titles. After he resigned, the fund failed to win a majority for a proposal to prohibit one person from occupying both the chairman and chief executive posts. However, Ethos did win an impressive 37% shareholder support.