ZURICH, Switzerland - 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 those of competing Wall Street firms.
"It's the end of a separate entity called Credit Suisse First Boston," said Simon Adamson, an analyst at CreditSights Inc. in London, an independent credit research firm. "It's not going to be the all-encompassing investment bank it used to be."
Chief Executive Officer Oswald J. Gruebel and Brady W. Dougan, CEO of 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 3 billion Swiss francs ($2.6 billion) in 2007 from about 1.1 billion francs last year.
Credit Suisse, Switzerland's second-biggest bank, might drop the name of First Boston, an investment bank founded in 1932.
Gruebel and Dougan are cutting back at CSFB, where costs are about 20 percent higher than at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.
Credit Suisse is reorganizing five months after it ousted John Mack as head of New York-based CSFB. Shares of Credit Suisse rose 4.3 percent to 46.95 francs, 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, and some administrative positions, a person familiar with the decision said. CSFB had more than 16,000 employees at the end of September.
CSFB will abandon plans to provide all services to all clients and instead will stick to certain products where it has an advantage, 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 those of Goldman Sachs, Lehman and other Wall Street firms since Credit Suisse spent $13 billion to buy Donaldson, Lufkin & Jenrette Inc. in 2000 at the height of the bull market.
"The performance gap remains significant," Dougan said.
Dougan and Gruebel didn't say which businesses would be curtailed during the next two years or what jobs would be cut, but they said 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, Dougan said.
"It's not about reducing scale," Dougan said. "It's about shifting our resources."
CSFB will spin off two hedge funds, the Credit Opportunities Fund and the Diversified Credits Fund. They will become independent entities early next year, Dougan said in a memo to employees.
Credit Suisse's involvement with CSFB has been a series of successes and missteps as the firm rose to the top of the mergers business under deal-maker 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.