What's the fastest way to the top of the international fixed-income ladder? Try a senior managerial stint at Credit Suisse First Boston in New York. That formula worked well for Robert Diamond who is now head of global debt markets at BZW in London where a recent hiring and firing spree has made him the centre of attention in the Euromarkets. The other former CSFB bond superstar who looks set to arrive on the Euromarket centre-stage is John Costas, formerly head of North American fixed-income for UBS before being appointed head of global fixed-income for the bank in early February.
Wall Streeters were genuinely surprised when Costas defected to UBS in early 1996. After 15 years with CSFB he was beginning to look like a "lifer". He had never been with another firm. While Diamond was reputed to have had a bitter row with CSFB head Allen Wheat over bonus payments to his bond group, Costas' relationship with Wheat was friendly. Also, CSFB's profits, which had been modest for several years compared with its larger Wall Street competitors, were surging.
At CSFB Costas had, at the age of 40, already risen almost to the top. He was head of the firm's US fixed income business. He was one of the 10 members of CSFB's global operating committee. There was a reasonable chance that Costas would one day run the firm.
His career had been successful, even by the most rigorous Wall Street standards. He was an exceptional student at the University of Delaware and had completed his MBA at Dartmouth by the age of 24. He had no overwhelming ambition to pursue a career on Wall Street. His father might have preferred him to become a lawyer or perhaps apply to join the marketing programme of a major manufacturing corporation such as Procter & Gamble. The conversion to Wall Street came with a visit from First Boston who asked him to join the firm's associate sales/trading programme.
Quantitative skills
While it was still unusual in the early 1980s for Ivy League MBAs to move to Wall Street, Costas took to the securities business like a natural. Having completed the programme he was immediately assigned to the government sales desk under Jimmy Powers. There his natural quantitative skills found the perfect outlet. The whole fixed-income market was undergoing a sea-change. There were new fixed-income instruments including zero coupons, debt warrants, futures and options.
Costas was perfectly at home with the younger generation of fixed-income managers. He used to cover many of the then fledgling hedge funds which later became huge clients for the firm. Always one of the top-producing bond salesmen, his contribution reached a record in 1989 when he was responsible for 17% of all US treasury and agency sales volume for the firm in the US. A year later he was given a proprietary trading account. As a result of the performance of that account he was appointed to manage the firm's futures operation in Chicago, the futures salesforce, all reps business, short-term money market sales and trading including commercial paper and FRNs.
With much of CSFB's fixed-income world at his feet why choose to decamp to UBS in March 1996? Money was never the real question as Costas had been one of the highest paid executives in the firm for the previous 10 years. With Diamond out of the way Costas had lost his only real fixed-income rival. CSFB could boast a world-class fixed-income business in London, New York and Tokyo, something other Wall Street houses were still trying to achieve. Costas praises his old firm for its "wonderful distribution franchise" and "trading talent which has never been better". He considers Wheat one of the "most focused" managers on Wall Street and former chief executive Jack Hennessey "one of the world's best salesmen".
The decision to move on to UBS appears to reflect a wider personal ambition and the opportunity to make an impact on a substantial global business. Costas believes the international equities markets and investment banking will eventually be dominated by seven or eight institutions which will control between 60% and 70% of the business. UBS has the name, balance sheet, distribution and senior management talent to ensure a place in that elite group. The only chink in its fixed-income armour was in the US.
Costas was initially hired to spearhead a campaign to make UBS a major US domestic fixed-income player. He was looking for a grass-roots opportunity having spent so much time recently at CSFB restructuring rather than building. Rumours that he may have considered a similar offer from Chase are unconfirmed. But Costas' appearance at UBS's offices at 290 Park Avenue has had tongues wagging in the same way as Edson Mitchell's arrival at Deutsche Morgan Grenfell in London did two years ago. Already he has hired more than 100 people, mainly experienced trading and sales professionals. Among Wall Street's fixed-income elite who have joined the Costas band-wagon are Jeffrey Benjamin and Steve Jones to form a new high-yield group. Benjamin came from Bankers Trust and Jones, seen as a key hiring for Costas, was poached from CSFB. Benjamin and Jones have since hired Robert Okun, the head high-yield trader from Salomon Brothers. Also from Salomon Brothers Costas brought in Michael Hutchins to be global head of financing and new issues. For a head of syndicate Costas again turned to CSFB to hire Michael Allen. To strengthen UBS's position in mortgage-backed securities Costas recruited Kevin Finnerty from Bear Stearns where he was head of mortgage and asset-backed securities. For the bank's fast expanding emerging markets group Costas turned to Chase to poach Daniel Canel who had been co-head of the bank's global emerging markets since 1995 but had previously worked 17 years at JP Morgan.
Such quality hirings don't come cheap. Costas himself will have had to be enticed away from CSFB with substantial guarantees. Not for nothing did Wall Street observers and gossip columnists refer to him probably with a degree of envy as "Costaplenty". In New York UBS currently employs around 2,400 staff of whom more than 200 have been added since the beginning of 1996. In a research report from HSBC James Capel Banking dated February 1997, the authors commented, "the cost of these hirings is estimated to have added Sfr100 million per annum to UBS's wage bill".