Wednesday, December 08, 2004
CSFB Spinout Bennett Goodman's New HF (+ Tom Dean)
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December 8, 2004
Credit Suisse to Overhaul First Boston Operations
By JENNY ANDERSON and FIONA FLECK
redit Suisse Group announced yesterday that it would integrate its Credit Suisse First Boston investment banking arm into the parent company over the next two years in an effort to create a "more focused franchise."
As part of the overhaul, Credit Suisse said it would remove its top-performing merchant banking business from Credit Suisse First Boston. In a complex transaction, the funds currently invested will remain with the investment bank but new funds, including DLJ Merchant Banking Partners IV, which is currently being raised, will become independent entities; Thompson Dean will run the merchant banking business.
In addition, the bank will spin out two hedge funds, worth about $1 billion each, to be run by Bennett J. Goodman, the head of the alternative capital division and the chief architect of the bank's top-ranked leveraged finance business, and Jack DiMaio.
Both executives will leave the bank. A portion of the fees for the funds already invested - including DLJ Merchant Banking Partners I, II and III - will continue to go to Credit Suisse First Boston.
After years of arguing that it could manage the obvious conflict of interest embedded in running one of the world's largest private equity funds, Credit Suisse First Boston has now acknowledged that competing against its own clients is not a winning proposition.
The firm attributed the decision to the fact that the big funds, searching for investment opportunities, were frequently competing against their clients.
The bank's business unit that covers those clients, called the financial sponsors group, is one of the firm's most profitable, bringing in significant fees for financing, advisory work and fund-raising, said Brian D. Finn, president of Credit Suisse First Boston, and Mr. Goodman.
"The best way to grow that is to make sure you don't have any businesses that conflict with it," Mr. Goodman said. "Because that group has grown, they are bumping up against the bigger clients of the fund," he said, saying he expected the financial sponsors group to double its revenues in the next four to five years.
That conflict emerged recently when Waren Acquisitions, a company controlled by DLJ Merchant Banking III and J. P. Morgan Partners, went up against Blackstone - a lucrative CSFB client - to bid for Warner Chilcott, a Northern Ireland pharmaceutical company. Waren Acquisitions won the bidding, agreeing to pay $3 billion, but not without frustrating Blackstone, several executives involved in the deal said.
With Mr. Goodman leaving, Mr. Finn will run the group. (Investment banking will continue to report to Mr. Finn as well.)
"It's a huge lost opportunity," a person close to the company said. "The one thing CSFB is known for is its high yield and private equity businesses: those are the marquee things you know CSFB for."
Two other executives from the leveraged finance group joined Mr. Goodman in March. Douglas I. Ostrover, another close ally of Mr. Goodman's who was chairman of the leveraged finance group, will join Mr. Goodman's new fund.
Credit Suisse First Boston will not leave the private equity business altogether. Mr. Finn will continue to manage various funds including its mezzanine financing fund, its secondary fund and its real estate funds, as well as its various funds-of-funds. The group controls almost $30 billion in assets. It will continue to receive fees from DLJ Merchant Banking Partners I, II and III, all of which are fully invested.
Credit Suisse First Boston's move is not unique. In early 2004, Morgan Stanley spun out its merchant banking business to avoid competing against clients.
At the same time, other banks have been aggressively looking to acquire hedge funds, which offer an attractive fee structure of 1 to 2 percent of assets under management and 20 percent of the fund's returns.
In late September, J. P. Morgan Chase & Company bought a majority stake in Highbridge Capital Management in a deal that reportedly valued the fund at more than $1 billion.
The deal gives J. P. Morgan an attractive product for its clients and steady income. Lehman Brothers is also said to be in talks to acquire a piece of a major fund. Other changes are in store for Credit Suisse First Boston. The parent company's chief executive, Oswald J. Grübel, said that he wanted to create "one bank" by streamlining Credit Suisse and Credit Suisse First Boston into three business lines: private clients, corporate and investment banking clients, and asset management. This process, he said, would take 18 months to two years to complete.
He said the two divisions would work more closely together and benefit from more cross-selling, like recommending investment banking clients to private banking, for example.
"Our business units are very autonomous and very independent and that's just too expensive," Mr. Grübel said.
Credit Suisse said its core private banking business was as strong as that of rivals, but that "CSFB margins remain well below peers" and that it was no longer one of the top Wall Street investment banks.
In a presentation to investors at the bank's headquarters in Zurich, company officials said 200 to 300 jobs would be cut at Credit Suisse First Boston across all units and regions but did not say when.
Brady W. Dougan, chief executive of the investment banking arm, said that the long-term goal was to have one brand name but it was not yet decided whether this would mean dropping the First Boston brand.
Mr. Dougan said Credit Suisse First Boston would shift from businesses like investment grade debt to focus on areas including leveraged finance, mergers and acquisitions, and mortgage securitization.
The company also said it would sell part of its insurance business, Winterthur, on the stock market if no buyer could be found for the unit. The company said it had had bidders, but none prepared to pay an adequate price. Winterthur is valued at 8 billion Swiss francs ($7 billion).
Credit Suisse said it planned to raise its dividend to about 1.50 Swiss francs and was considering a share buyback in 2005. Shares of the company rose 4.3 percent, to 46.95 Swiss francs in trading in Zurich.
Jenny Anderson reported from New York for this article and Fiona Fleck from Zurich.
Copyright 2004 The New York Times Company
December 8, 2004
Credit Suisse to Overhaul First Boston Operations
By JENNY ANDERSON and FIONA FLECK
redit Suisse Group announced yesterday that it would integrate its Credit Suisse First Boston investment banking arm into the parent company over the next two years in an effort to create a "more focused franchise."
As part of the overhaul, Credit Suisse said it would remove its top-performing merchant banking business from Credit Suisse First Boston. In a complex transaction, the funds currently invested will remain with the investment bank but new funds, including DLJ Merchant Banking Partners IV, which is currently being raised, will become independent entities; Thompson Dean will run the merchant banking business.
In addition, the bank will spin out two hedge funds, worth about $1 billion each, to be run by Bennett J. Goodman, the head of the alternative capital division and the chief architect of the bank's top-ranked leveraged finance business, and Jack DiMaio.
Both executives will leave the bank. A portion of the fees for the funds already invested - including DLJ Merchant Banking Partners I, II and III - will continue to go to Credit Suisse First Boston.
After years of arguing that it could manage the obvious conflict of interest embedded in running one of the world's largest private equity funds, Credit Suisse First Boston has now acknowledged that competing against its own clients is not a winning proposition.
The firm attributed the decision to the fact that the big funds, searching for investment opportunities, were frequently competing against their clients.
The bank's business unit that covers those clients, called the financial sponsors group, is one of the firm's most profitable, bringing in significant fees for financing, advisory work and fund-raising, said Brian D. Finn, president of Credit Suisse First Boston, and Mr. Goodman.
"The best way to grow that is to make sure you don't have any businesses that conflict with it," Mr. Goodman said. "Because that group has grown, they are bumping up against the bigger clients of the fund," he said, saying he expected the financial sponsors group to double its revenues in the next four to five years.
That conflict emerged recently when Waren Acquisitions, a company controlled by DLJ Merchant Banking III and J. P. Morgan Partners, went up against Blackstone - a lucrative CSFB client - to bid for Warner Chilcott, a Northern Ireland pharmaceutical company. Waren Acquisitions won the bidding, agreeing to pay $3 billion, but not without frustrating Blackstone, several executives involved in the deal said.
With Mr. Goodman leaving, Mr. Finn will run the group. (Investment banking will continue to report to Mr. Finn as well.)
"It's a huge lost opportunity," a person close to the company said. "The one thing CSFB is known for is its high yield and private equity businesses: those are the marquee things you know CSFB for."
Two other executives from the leveraged finance group joined Mr. Goodman in March. Douglas I. Ostrover, another close ally of Mr. Goodman's who was chairman of the leveraged finance group, will join Mr. Goodman's new fund.
Credit Suisse First Boston will not leave the private equity business altogether. Mr. Finn will continue to manage various funds including its mezzanine financing fund, its secondary fund and its real estate funds, as well as its various funds-of-funds. The group controls almost $30 billion in assets. It will continue to receive fees from DLJ Merchant Banking Partners I, II and III, all of which are fully invested.
Credit Suisse First Boston's move is not unique. In early 2004, Morgan Stanley spun out its merchant banking business to avoid competing against clients.
At the same time, other banks have been aggressively looking to acquire hedge funds, which offer an attractive fee structure of 1 to 2 percent of assets under management and 20 percent of the fund's returns.
In late September, J. P. Morgan Chase & Company bought a majority stake in Highbridge Capital Management in a deal that reportedly valued the fund at more than $1 billion.
The deal gives J. P. Morgan an attractive product for its clients and steady income. Lehman Brothers is also said to be in talks to acquire a piece of a major fund. Other changes are in store for Credit Suisse First Boston. The parent company's chief executive, Oswald J. Grübel, said that he wanted to create "one bank" by streamlining Credit Suisse and Credit Suisse First Boston into three business lines: private clients, corporate and investment banking clients, and asset management. This process, he said, would take 18 months to two years to complete.
He said the two divisions would work more closely together and benefit from more cross-selling, like recommending investment banking clients to private banking, for example.
"Our business units are very autonomous and very independent and that's just too expensive," Mr. Grübel said.
Credit Suisse said its core private banking business was as strong as that of rivals, but that "CSFB margins remain well below peers" and that it was no longer one of the top Wall Street investment banks.
In a presentation to investors at the bank's headquarters in Zurich, company officials said 200 to 300 jobs would be cut at Credit Suisse First Boston across all units and regions but did not say when.
Brady W. Dougan, chief executive of the investment banking arm, said that the long-term goal was to have one brand name but it was not yet decided whether this would mean dropping the First Boston brand.
Mr. Dougan said Credit Suisse First Boston would shift from businesses like investment grade debt to focus on areas including leveraged finance, mergers and acquisitions, and mortgage securitization.
The company also said it would sell part of its insurance business, Winterthur, on the stock market if no buyer could be found for the unit. The company said it had had bidders, but none prepared to pay an adequate price. Winterthur is valued at 8 billion Swiss francs ($7 billion).
Credit Suisse said it planned to raise its dividend to about 1.50 Swiss francs and was considering a share buyback in 2005. Shares of the company rose 4.3 percent, to 46.95 Swiss francs in trading in Zurich.
Jenny Anderson reported from New York for this article and Fiona Fleck from Zurich.
Copyright 2004 The New York Times Company
# posted by Tom @ 10:34 AM 
