(August 30) – “Shares of Credit Suisse fell sharply on news that the Swiss bank is more than doubling the size of its investment banking operation through its $11.5bn cash and shares acquisition of Donaldson, Lufkin & Jenrette, a second tier Wall Street investment bank, The Financial Times is reporting this morning..
“The acquisition, for $90 a share, is the latest sign of the fierce battle being waged for market share in global investment banking. It comes little more than a month after UBS, Credit Suisse’s Swiss rival, agreed to buy PaineWebber, the US brokerage firm, for $12.4bn.
“Claudia von Turk-Knobloch, of Pictet & Cie, said that the deal was “strategically very interesting”. However, its success would depend on whether Credit Suisse First Boston, the Swiss bank’s investment bank, could retain DLJ’s key staff.
“She also noted that Credit Suisse was increasing its exposure to volatile investment banking earnings at a rather late stage in the stock market cycle.
Credit Suisse’s shares fell by SFr12, to SFr369 ($214), in early trading. The bank is issuing 30m new shares to finance the deal.
“Credit Suisse also appears to be paying more than rival UBS in its bid to strengthen its Wall Street position. UBS paid 18.1 times estimated 2000 earnings for PaineWebber while Credit Suisse is paying an estimated 18 times 2001 earnings for DLJ.
“The bank’s decision to increase its exposure to investment banking contrasts with an earlier commitment to generate two thirds of its revenues from the more stable asset gathering businesses, and only one third from investment banking.
“Swiss analysts are reserving their judgement on the deal until they have quizzed management at Thursday’s investment analysts meeting which was called to cover the publication of Credit Suisse’s first half results.
“Bank Sarasin estimates that the Swiss bank will increase its first half net income by 27 per cent, to SFr3.4bn. Pictet is going for SFr3.65bn.