Wires

UPDATE 6-Credit Suisse CEO Thiam toppled by espionage scandal

John Miller

* Thiam repeats he was unaware of surveillance

* Board backs Chairman Rohner to finish term

* Swiss business head Gottstein to succeed Thiam

* Shares in Credit Suisse fall (Adds FINMA comment)

ZURICH, Feb 7 (Reuters) - Tidjane Thiam has quit as Credit Suisse chief executive after a spying scandal that has hit the reputation of Switzerland's second-biggest bank and shocked the country's financial community.

Thomas Gottstein, who is head of the Swiss business at Credit Suisse, will take over from Thiam, the Zurich-based lender said on Friday. His departure ends a conflict with Chairman Urs Rohner after revelations that the bank had snooped on former executives raised questions over its culture.

The espionage involving Credit Suisse surfaced in September when former star wealth manager Iqbal Khan, after defecting to rival UBS, confronted a private detective who was following him and his wife through Zurich.

A spokesman for Switzerland's market supervisor FINMA said it was important that calm was restored to the bank. It said it was continuing its investigations into the scandal.

Thiam's exit, ending a near five-year run as Credit Suisse CEO, runs the risk of irking international investors who had backed him, not Rohner.

"A period of instability will ensue as Mr Gottstein attempts to lay the foundations for further growth. We would assume investor discontent following the change, with any fall-out unknown at this stage," KBW analysts said.

This was reflected in a 5% drop in the bank's share price in early trade. It was down about 0.7% by 1320 GMT after recouping much of the earlier losses.

Credit Suisse's board said that Rohner had its backing to complete his term until April 2021.

Thiam, 57, was appointed as CEO in 2015, having never previously worked for a bank. At Credit Suisse, the ex-Prudential boss focused on cutting costs, reducing risk, scaling back investment banking to focus more on wealth management, and strengthening its balance sheet.

Engineering that turnaround led to three years of consecutive losses, but the bank returned to profit in 2018, leading to plaudits for the former Ivory Coast government minister and McKinsey management consultant.

However, what the bank initially described as a rogue spying case run by then-Chief Operating Officer Pierre-Olivier Bouee widened as details emerged of other instances of surveillance.

Swiss financial supervisor FINMA is investigating after the bank subsequently acknowledged that it had tailed former human resources head Peter Goerke.

Thiam again said he knew nothing of these activities.

"I had no knowledge of the observation of two former colleagues. It undoubtedly disturbed Credit Suisse and caused anxiety and hurt. I regret that this happened and it should never have taken place," Thiam said in the statement.

'SAFE PAIR OF HANDS'

Gottstein, a prominent investment banker and wealth manager before taking over Credit Suisse's domestic operation, had been flagged by analysts as a potential successor to Thiam.

"Based on his deep and comprehensive experience in our business and in view of his impressive performance as head of our Swiss bank and his respect amongst our clients and employees, Thomas Gottstein is excellently positioned to lead Credit Suisse into the future," Rohner said in a statement.

Gottstein will be the first Swiss citizen to run Credit Suisse in almost 20 years. The 55-year-old has been at the bank since 1999, joining from rival UBS. He has spent most of his career working in equity capital markets before taking over as chief of Credit Suisse's Swiss bank in 2015.

Citigroup analysts described Gottstein in a note as a "safe pair of hands".

Thiam's resignation, effective from Feb. 14 after the presentation of fourth-quarter and full-year 2019 results, came at a board meeting on Thursday.

During the meeting in Zurich directors backed Rohner despite calls from Swiss investment adviser Ethos Foundation for him to quit.

"Urs Rohner has led the board of directors commendably during this turbulent time," said board member Severin Schwan in the bank's statement.

"After careful deliberations, the board has been unanimous in its actions, as well as in reaffirming its full support for the chairman to complete his term until April 2021."

In Switzerland, Credit Suisse and UBS typically have a Swiss national as either chairman or chief executive.

Gottstein's appointment could therefore pave the way for a non-Swiss chairman. One person familiar with the matter said Richard Meddings, a British banker set to join the board, could take over from Rohner.

Andre Helfenstein, now responsible for Credit Suisse's institutional clients in Switzerland, will succeed Gottstein as CEO of the Swiss business and join the executive board.

(Reporting by John Miller, Oliver Hirt, Brenna Hughes Neghaiwi and John O'Donnell Editing by Sam Holmes, David Goodman and Alexander Smith)