Credit Suisse To Combine CSFB With Banking Business
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Credit Suisse Group plans to merge its Credit Suisse First Boston securities unit with the rest of the company’s banking operations, ending 72 years of independence for an investment bank whose profit trails competing Wall Street firms.
“It’s the end of a separate entity called Credit Suisse First Boston,” said Simon Adamson, an analyst at Credit-Sights Inc. in London, an independent credit-research firm. “It’s not going to be the all-encompassing investment bank it used to be.”
The chief executive, Oswald Gruebel and Brady Dougan, who runs CSFB, told investors at a meeting in Zurich yesterday that as many as 300 jobs will be eliminated at CSFB as part of an effort to boost net income at the investment bank to at least $2.6 billion in 2007 from about $9.6 million last year. Credit Suisse, Switzerland’s second biggest bank, also may drop the name First Boston, an investment bank founded in 1932.
Messrs. Gruebel, 61, and Dougan, 45, are cutting at CSFB, where costs are about 20% higher than at Goldman Sachs Group and Lehman Brothers Holdings.
Credit Suisse is reorganizing five months after it ousted John Mack as head of New York-based CSFB. Shares of Credit Suisse rose 3.21% to $40.83, the biggest one-day gain in almost 1 1/2 years.
The job reductions will affect employees in research, investment banking, and equity sales and trading, as well as some administrative positions, a person familiar with the decision said. CSFB employed more than 16,000 people at the end of September.
CSFB will abandon plans to provide all services to all clients and will instead stick to certain products where it has an advantage, Mr. Dougan said. Those include high-yield bonds, mortgage-backed securities, electronic trading, derivatives, and advising on mergers and initial public offerings, he said. The bank will concentrate on serving its most lucrative clients, including buyout firms and hedge funds.
Earnings at CSFB have trailed Goldman Sachs, Lehman and other Wall Street firms since Credit Suisse spent $13 billion to buy Donaldson, Lufkin & Jenrette in 2000 at the height of the bull market.
“The performance gap remains significant,” Mr. Dougan said.
While Messrs. Dougan and Gruebel didn’t say which businesses would be curtailed during the next two years or what jobs would be cut, the company will “consolidate” CSFB’s capital-markets unit and spin off the DLJ merchant banking unit. The staff reductions won’t be concentrated in any one area, Mr. Dougan said.
“It’s not about reducing scale,” Mr. Dougan said. “It’s about shifting our resources.”
CSFB will spin off hedge funds run by Bennett Goodman, 47, and Jack Di-Maio, 37. Mr. Goodman’s Credit Opportunities Fund and Mr. DiMaio’s Diversified Credits Fund will become independent entities in early 2005, Dougan said in a memo to employees. Doug Ostrover, 42, CSFB’s head of leveraged finance, will leave in January to join the Credit Opportunities Fund, the memo said.
Credit Suisse’s involvement with CSFB has been a series of successes and missteps, as the firm rose to the top of the merger league tables under dealmaker Bruce Wasserstein in the 1980s only to stumble with the collapse of the junk-bond market in 1989.
CSFB was bailed out of that crisis by its Swiss parent, and that was followed in 1993 by the defection of managers, including the heads of its fixed-income, mergers, and high-yield debt teams, who were lured to competitors by higher bonuses. Five years later, CSFB was hobbled by losses after Russia defaulted on its debt.
This year, the firm’s former technology banker, Frank Quattrone, was sentenced to 18 months in prison for urging employees to destroy documents in an investigation into CSFB’s stock-allocation practices.
Credit Suisse yesterday said it plans to sell shares of Winterthur insurance after failing to find a buyer. CSFB also will create teams to boost its proprietary trading and derivatives operations.
Marc Granetz, 48, and Eric Varvel, 41, will oversee the corporate and investment banking unit, Dougan said. Brian Finn, 44, who was interim head, will manage the alternative capital division. Jeremy Bennett, 40, will run the derivatives efforts, and Bob Jain, 34, will take responsibility for proprietary trading.
CSFB plans to bet more money in the markets to help boost profitability that lags behind UBS AG and Goldman Sachs Group.
“I am confident we can increase risk and stay out of trouble in terms of trading losses,” Mr. Dougan told investors. “One of the gaps in our earnings compared with competitors has been in risk.”
Credit Suisse also intends to expand its commodities business, possibly with acquisitions, as energy prices climb.
“Our top priority is to define clearly and consistently the client segments which correspond with the strengths of our company,” Mr. Gruebel said during the presentation to investors.
Expenses at CSFB, the world’s no. 7 securities firm by capital, surged after the DLJ acquisition. The takeover, led by former Credit Suisse CEO Lukas Muehlemann and then CSFB CEO Allen Wheat, added 11,300 employees to Credit Suisse’s payroll.
Mr. Mack, who left Morgan Stanley after losing a power struggle to run the world’s no. 2 securities firm, was brought in to replace Mr. Wheat in July 2001 after CSFB ran afoul of American regulators. Mr. Mack slashed 10,000 jobs and pledged to return CSFB to the top ranks of investment banking.
CSFB fell to 10th this year from third among providers of merger advice when Credit Suisse bought DLJ. CSFB is eighth among global equity underwriters, down from fourth in 2000, when Mr. Quattrone’s banking unit ranked no. 1 in managing initial public offerings for tech companies.
CSFB held the top position in American junk-bond underwriting from 2000 to 2003 and ranks second this year behind Citigroup, with a 13.5% share of the market and $16.7 billion of deals. In European high-yield debt underwriting, CSFB is second, compared with 10th five years ago.
First Boston was started as First of Boston Corp., the investment-banking arm of the First National Bank of Boston. The firm was spun off after the Glass-Steagall Act of 1933, a law that forced commercial banks to divest their securities businesses.
Since Credit Suisse acquired a stake in First Boston in 1978, executives from the bank have tried periodically to rein in risk and crack down on compliance at CSFB by replacing top management or supporting the business with cash infusions. CSFB, which is now owned by Credit Suisse, has had seven different chief executives since the mid-1970s.
CSFB spawned some of Wall Street’s most successful deal makers during the 1980s, including Mr. Wasserstein, who’s now head of Lazard LLC, and Joseph Perella, who co-founded Wasserstein, Perella & Company in 1988.
In 1990, after CSFB had a $587 million loss when the junk bond market collapsed, then Credit Suisse Chairman Rainer Gut injected $300 million into the investment bank.