Credit Suisse First Boston continually astounds onlookers with its innate ability to assemble the right ingredients, fail to mix them together properly and yet still be able to salvage something from the result.
CSFB’s debt businesses ought to be in disarray given the past 18 months’ upheaval. In early 2000 the bank folded the elephant-hitting, kill-what-you-eat culture of Credit Suisse Financial Products into the more relationship-oriented CSFB. Then its asset-backed team decamped en masse to Deutsche Bank, forcing a rebuild from scratch.
At the end of August, CSFB bought DLJ, partly for its leveraged finance prowess. Within a month the team came very close to leaving for HSBC.
To cap it all, in February more than 40 high-grade bankers, many of them senior managers including Jack DiMaio and John Walsh, accepted offers to join Barclays Capital. They were unhappy at having Stephen Hester as boss – he was appointed last summer, having been CFO beforehand. But CEO Allen Wheat, promising a change in structure as well as a change in pay, persuaded them to stay.
The aim has been to create a fully integrated debt division across all products from loans and short-term debt through high-yield and high-grade to structured products. CSFB isn’t alone in trying this, but has done well in the face of a fair amount of adversity. As a bank famous for the independence of its business units, there was always going to be trouble in trying to integrate. That, say insiders, is why the ABS team under Jorge Calderon and Phil Weingord left: they wanted to retain their autonomy. Calderon has just been appointed global head of debt capital markets at Deutsche.
Yet by May the firm was reporting record business in its fixed-income division as a whole. The high-yield team has pretty much regained the top spot in the US tables and restarted its ascent in Europe; high-grade has been phenomenally busy in the US and Europe. As of mid-May CSFB had been involved in a senior capacity in the largest corporate issue of the year, France Telecom’s $16.4 billion multi-tranche deal); the largest high-yield deal of the year, $1.5 billion for Calpine; and the largest agency deal of the year, Fannie Mae’s $11.5 billion offering.
The linking of DLJ’s high-yield team with CSFB’s high-grade people appears to have borne some fruit, despite the near-loss of both teams. “The distinction between the two asset classes really isn’t as relevant as it used to be,” explains Walsh. “Credit profiles are changing. There has been a plethora of crossover deals this year, and you simply can’t preordain which investors will buy. So we pitch as a credit house, not as a high-yield or high-grade house.”
The firm has even been active in Japan, despite the controversy still surrounding the actions of its former sibling, Credit Suisse Financial Products. It’s brought yen deals for the Deposit Insurance Corp of Japan, the Takefuji Corporation, and for foreign companies such as John Hancock, Xerox and Volkswagen. “We’ve really invested in Japan,” says Walsh. “And it shows. We’ve come from nowhere to sixth or seventh.”
Latin America has been another region where CSFB’s presence is increasing. It’s muscled its way into deals, and has been involved in all three sovereign debt exchange deals this year, for example.
The team brought in to fill in the asset-backed gap has hardly missed a beat, offering one of the most diverse offerings. And its derivatives operations, run by Lee Mallett, are gradually being brought under one command both in practice as well as in theory, with volumes up 50% or more on last year.
“We’re product neutral,” explains Walsh, adopting an oft-heard phrase in the credit markets these days. “Our aim is to do what’s best for the client, regardless of whether it involves a high-grade deal, a securitization, or a bank loan. We don’t have product-by-product silos, and there are no P&L disputes.”
Competitors may find that hard to believe, given CSFB’s history. But they can’t deny that the firm has excelled in the past years at eking a very good performance out of the various business units. The challenge is to make that work over a longer time frame.
