First Boston Stomps Closer to Its Bulge-Bracket Goals

Credit Suisse First Boston's recent pillaging of Deutsche Banc Alex. Brown's health-care unit is part of its quest to win the underwriting war.
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Just days after the Germans completed their takeover, the Swiss moved in.

Reportedly camped out near Baltimore, a division of

Credit Suisse First Boston

executives struck last month, making off with the core of

Deutsche Banc Alex. Brown's

health-care unit -- 33 bankers, analysts and support staff in all. It wasn't a surprise attack; the health-care unit was known to be a plum worth plucking out of Alex. Brown amid the turmoil of

Deutsche Bank's

acquisition of

Bankers Trust

, which owned Alex. Brown.

So much for Swiss neutrality.

The surgical strike beat out other Wall Street players, including

Salomon Smith Barney

(a

Citigroup

(C) - Get Report

unit) and

Morgan Stanley Dean Witter

(MWD)

, which were also vying for the health-care group. The hiring also forced Deutsche Bank to return fire -- it sued the bankers in two separate lawsuits to stop them from working at First Boston. The suits are pending, according to a Deutsche spokeswoman. A Credit Suisse First Boston spokeswoman declined to comment on the lawsuits.

It also marked the second time First Boston had poached from Deutsche in the past year. First Boston made its big move last year by luring away Deutsche's entire 100-member tech banking group and its leader, Frank Quattrone. Both moves, along with several other recent hires, are putting on display the firm's desire to push its way back into Wall Street's elite.

"Credit Suisse sees a vacuum and opportunity," says one executive headhunter who requested anonymity but is familiar with the firm's plans. "They have a plan in mind, and that's to recover the previous glory when First Boston was a bulge-bracket firm."

First Boston was Wall Street's No. 2 firm in overall debt and equity underwriting -- behind

Salomon Brothers

-- from 1985 to 1987, according to

Thomson Securities Data

.

"Our goal is pretty simple," says Al Jackson, First Boston's head of global equity research. "We want to gain market share from our corporate competitors and narrow the gap between us and the top."

That top -- the bulge bracket of

Goldman Sachs

(GS) - Get Report

, Morgan Stanley,

Merrill Lynch

(MER)

and Salomon Smith Barney -- represented 46% of all underwriting in the year's first six months.

To narrow that gap, First Boston has been in a hiring mode: The firm has beefed up its research side, Jackson says. It has hired 10 new analysts, including seven

Institutional Investor

-ranked analysts, since the beginning of the year, bringing the total number of U.S. analysts to 79. In addition to the health-care group, the firm has added to its equity desk and high-yield bond desks on the investment banking side as well.

So far, First Boston's plan is producing results. The firm surpassed

Lehman Brothers

(LEH)

to take the fifth-place ranking for total new-issue underwriting, debt and equity, for the first six months of this year. Indeed, First Boston was less than $3 billion in proceeds away from passing Goldman Sachs for the fourth-place slot, according to data from Thomson.

In individual categories, First Boston was even more impressive. The firm moved up to fifth from eighth among its Wall Street brethren in overall stock underwriting, raising $6.1 billion in the year's first half -- more than double its $3 billion raised in 1998's first half.

In the rarified world of IPOs, First Boston held at fourth place, but increased its dollars-raised total by 44% to $2.3 billion in this year's first six months, compared to last year's first half total of $1.6 billion. The firm's latest IPOs --

Gadzoox Networks

(ZOOX)

and

MP3.com

(MPPP)

-- have exploded out of the gate.

The increase in IPO volume has paid big dividends -- the firm's first-half fee total on its IPOs reached almost $140 million, more than 60% greater than last year's midyear fee haul of $86 million.

Its M&A track record is equally impressive. The firm moved up to fourth from eighth in M&A advisory on deals already completed, counseling on 123 mergers worth a combined $225 billion in the year's first six months. That total almost triples the watermark at this time last year, when the firm advised on 88 deals worth $82 billion.

"There is a long list of European banks that tried to make it big in the U.S. market by buying into it," says Derrick Statkevicus, an analyst for

Keefe Bruyette & Woods

. "And they met with a range of success that went from mediocre to outright failure." The one exception, it seems, is Credit Suisse, he says.

One of the main reasons for the difference is that Credit Suisse has had years to smooth out any rifts, explains Jackson, the research chief. Credit Suisse and First Boston had been affiliated since the late 1970s, but they didn't become fully integrated until 1993, according to the firm.

"A number of people here have now been together for years," he says. "Any tensions, if there were any, have disappeared because the First Boston unit has delivered."

One First Boston banker agrees, saying the firm is now seeing the success of paying up for superstar free agents like Quattrone. "When we do this and it complements the existing franchise, our willingness to purchase whole banking groups pays off," he says. "We're not a 'meld with the firm or screw you' kind of place. But we are a better firm for having Frank Quattrone here."

Of course, paying for free-agent investment bankers can get expensive, Statkevicus warns. And free agents tend to last only as long as the money does -- a lesson Deutsche itself learned from Quattrone.

However, if a firm continues to reward people and they continue to produce, it will continue to grow, says Jackson. "When I look at the level of business we are doing and the level of business we have coming, I know we are going in the right direction," Jackson says. "We haven't narrowed the gap between us and

the bulge bracket completely, but we're moving that way."