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Stocksak: CS First Boston revival is fueled by talent and capital issues


© Stocksak. FILE PHOTO – A Credit Suisse sign can be seen on the exterior their Americas headquarters in Manhattan, New York City. September 1, 2015. REUTERS/Mike Segar/File Photo

By Pamela Barbaglia. Anshuman Daaga and Andres Gonzalez

LONDON (Stocksak). Credit Suisse is reviving the First Boston brand to revive its investment bank and restore energy to a dying business.

But securing talent or funds amid fierce competition from Wall Street titans or smaller advisory boutiques can make it difficult.

Credit Suisse First Boston (CSFB) will be carved from the Swiss lender. The bank is calling Michael Klein, a board member and savvy dealmaker, to lead the initiative. Klein has his own advisory business in 2010 and is no stranger at entrepreneurship.

Saudi National Bank (SNB), which is controlled by the government in Saudi Arabia, has committed to invest up 1.5 billion Swiss francs ($1.5 Billion) in Credit Suisse for a stake of up 9.9%. It also indicated that it may back the standalone CSFB, which will be an independent capital markets and advisory banking bank headquartered in New York.

Klein was involved in several deals in Saudi Arabia, including the listing of Aramco (TADAWUL):. Credit Suisse announced on Thursday that a new investment bank will be headed by Klein. It will be “more global, broader, and more focused than boutiques but more focused than bulge bracket players,” Credit Suisse stated.

It is unclear if Klein will continue to head his own business, M. Klein & Co, which would compete with CSFB. Klein did not respond when we asked him for comment.

Credit Suisse’s association with First Boston goes back to 1978, when they joined forces to trade in the London bond markets. After famed bankers left, the pair merged to form CS First Boston. However, the firm faced tough times and ran into regulatory problems. Some investors and bankers are skeptical about the firm’s ability to regain its glory in a shrinking marketplace.

The bank saw its shares plummet 18.6% on unveiling the overhaul – their biggest one-day fall since records began in 1989.

Thomas Hayes, Great Hill Capital chairman and managing member, stated that “I have zero confidence” in Credit Suisse’s ability turn around the bank.

“To change a bank, you don’t need financial capital engineering. To even consider a successful turnaround, you need a complete transformation of culture and human capital. Hayes, who is not employed by Credit Suisse, stated that you will continue to see the same mistakes and blow ups in the future.

SHARP DECLINE

Global dealmaking has fallen 33% in the first ninemonths of 2022, with only $2.97 trillion in announced deals by September.

Dealogic data has shown that global investment banking revenue fell 41% to $64.4Billion so far this fiscal year. This was due to a sharp fall in the U.S. market, where revenue from capital markets and dealmaking has nearly halved.

According to Refinitiv data in 2022, investment banks were also affected by a drought in stock offering – the worst year in nearly two decades for global equity capital market (ECM).

Analysts and bankers said that the deal pipeline for the future is not promising, with many of the world’s largest economies in danger of falling into recession.

For investment banks the decline in M&A and share sales – some of the major drivers of investment banking fees – means more pressure on revenue and more scrutiny of investment banking teams, with some banks like Goldman Sachs (NYSE:) cutting jobs while others freeze headcount.

Credit Suisse expects CSFB, which will be generating 14% of the total group revenue by 2025, to continue with annual sales of around $2.5 billion. It is not clear if the unit will coexist with other entities who have used the First Boston brand in recent decades.

WAIT AND SEE

The bank’s goal is to retain its talent. However, some bankers spoke to Stocksak under oath. They want clarity on the bank’s second strategic overhaul in less than a decade.

Stocksak was also told by sources that European dealmakers are concerned that CSFB will shift its attention to U.S. clients, as New York will be the centre of gravity for the new investment banking bank.

Credit Suisse has seen a flurry of departures of senior bankers in the last 18 months. Jens Welter’s departure in September was another blow. He resigned less than nine months after he was named co-head global banking.

First Boston, in addition to losing some of its top bankers, is also facing fundraising challenges as a separate entity with its own funding needs and without the ability to tap into the deep pockets of Credit Suisse.

JPMorgan (NYSE) analysts stated in a note that they are unsure about the profitability of First Boston and how it will be funded with debt in the future.

“We hoped for a greater investment banking shrinkage, in particular a closure of execution business in the bank.”

Chief Executive Ulrich Körner said, however, that the bank had seen “strong interest from many different investors to come in to CSFB,” while Chairman Axel Lehmann hinted at a hard $500 million commitment from “a highly respected investor”.

The greatest challenge is that Credit Suisse was historically one bank. However, its ability to cross-sell products has always been one of its key strengths. A Credit Suisse banker in Asia spoke on condition of anonymity.

However, the majority of trading activities will continue to be done within Credit Suisse, raising questions about CSFB’s ability to compete against JPMorgan and Goldman Sachs.

Credit Suisse is hoping to eventually pursue an initial public offering of CSFB, Körner told analysts. However, to sell shares, the bank will need to provide enough assurance to investors about its track record of success and its ability to win business.

“CS First Boston back has a very nostalgic 1980s vibe to it. But we’re no longer in the 80s,” stated Jerome Legras, Axiom Alternative Investments. “Let’s hope it works.”

($1 = 0.9892 Swiss franc)

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