After huge losses, Credit Suisse has adopted a new strategy for the second time in a year. For investment banking, she reactivates the CS First Boston brand. Does the story rhyme?
The two sails in the Credit Suisse logo come from the First Boston brand – now part of the investment banking is to be spun off again under this name.
History doesn’t repeat itself, but sometimes it rhymes. Also at Credit Suisse? First, the big Swiss bank has become big and notorious with investment banking in the past few decades, now this division of all things is to be cut and partly outsourced due to massive mismanagement; And maybe later the whole thing starts all over again? In addition to the massive price losses of Credit Suisse shares, this is one of the questions that arises in relation to the latest news about the restructuring plans.
The structure of that time suspiciously resembles …
It all began in the late 1970s, when the then third-largest Swiss bank acquired a 40 percent stake in the American securities trading and investment boutique First Boston via a subsidiary as part of a joint venture in order to jointly conquer the rapidly growing Eurobond market in London . Ten years later, the individual business units merged to form CS First Boston, in which the First Boston management, Credit Suisse and an “unspecified third party” played a significant role.
Even then, the megalomania of the investment bankers that would emerge in the years that followed could be guessed at. In fact, the basic idea was to turn the small financial boutiques into «a heavyweight in the international financial sector», which would be active worldwide in all areas from raising capital and merchant banking to advising on activities related to mergers and acquisitions and sales and trading in securities would offer a wide range of services.
What sounded like marketing talk actually seemed to have been it. Even then, it seems that the major Swiss bank was not in a position to implement clear structures after the merger. In disputes over shares and geographic jurisdiction, the individual operational units competed and got into each other’s hair so badly that the consequences were only a matter of time. Bruce Wasserstein and Joseph Perella, two top performers, soon went into business for themselves after building CS First Boston into a leader in advising clients on mergers and acquisitions.
“As soon as you see that the ship will soon sink, you jump overboard,” Perella explained his decision a few years later and seemed to have anticipated what would happen in the years that followed – Credit Suisse first increased its stake in CS First Boston to 60 percent, then grew rampant with the takeover in the years that followed the Volksbank, Winterthur Versicherung and the Wall Street house Donaldson, Lufkin & Jenrette. Shortly before the financial crisis, the entity was merged with the American subsidiary and the focus was on the Credit Suisse brand. The two stylized sails in the logo of the big bank are still reminiscent of First Boston.
Now, after more turbulent years, massive price losses, wild rumors and repeated changes in management, the Swiss financial group seems to be turning back the wheel of history. In investment banking, part of the business is to be outsourced to a separate legal entity for which the CS First Boston brand is to be reactivated. In the future, it will be managed by the previous CS board member, Michael Klein, and focus primarily on consulting and capital market business in the land of unlimited opportunities.
… that of the future line-up
Independent capitalization is planned for the new CS First Boston, and there are surprising parallels to the past a good 40 years ago: an “unspecified third party” is said to have already promised a stake of 500 million dollars. Of course, according to the concept, the future management team will also receive their shares, perhaps also the “historical” 25 percent from back then. Whether other external investors will get involved, what stake Credit Suisse itself is aiming for in the revitalized subsidiary and how realistic a rumored IPO is, remains to be seen. That should depend, among other things, on how the future relationship with Credit Suisse is designed.
As the experience of Credit Suisse’s bonus behavior in recent years shows, investment bankers are quite good when it comes to representing their own interests decisively. Now they will in future be led by a shrewd “rainmaker” like Michael Klein, who was able to launch the spin-off plan as a board member – from which he is stepping down with immediate effect – practically in the machine room of Credit Suisse.
Observers are forced to assume that the new CS First Boston will operate in the same way as smaller competitors – such as Cowen, Perella Weinberg Partners, Lazard, Evercore Partners, Piper Sandler or Moelis & Company. Almost all of them have one thing in common: their businesses have mostly done well in the past few years of cheap money, but the returns have reached the partners and employees involved rather than the shareholders – as is the case with Credit Suisse.