CSFB Reportedly Trying to Trim Lucrative Exec Deals
Credit Suisse First Boston, which recently hired Wall Street veteran John Mack to run the firm and cut costs, has asked its executives with guaranteed contracts to work out less lucrative deals, according to a person familiar with the situation.
Compensation costs at CSFB, the investment banking arm of Swiss bank Credit Suisse Group Inc., ballooned in the wake of its merger last year with U.S. investment bank Donaldson, Lufkin & Jenrette. CSFB had to pay out big packages to prevent DLJ’s top talent from defecting.
As a result, its first-quarter compensation expenses were about 59% of total net revenue, much higher than for peers including Goldman Sachs Group Inc. (ticker symbol: GS) and Morgan Stanley Dean Witter (MWD).
CSFB is known for paying big contracts to its stars: Tech banker Frank Quattrone reportedly pulled in $100 million at one point, according to the Wall Street Journal. CSFB has said the figure is too high but would not disclose Quattrone’s pay package.
The Journal first reported news of potential pay cuts Friday. Mack has been asking executives to restructure their guaranteed compensation packages, a person familiar with the situation told Reuters.
Mack earned the nickname “Mack the Knife” for his aggressive cost-cutting style while at Morgan Stanley, where he was president until this year. His old firm and other peers have slashed compensation levels to cope with a slump in revenue at investment banks.
Mack replaced Allen Wheat at CSFB amid a federal probe into how it and other Wall Street firms doled out shares of hot initial public offerings. The company maintained that the investigation was not the reason for Wheat’s departure. Last month, it fired three employees who answered to Quattrone and were tied to the firm’s IPO business.
CSFB said it will vigorously defend itself against the allegations.
A slowdown in stock offerings and merger-and-acquisition activity has taken its toll on CSFB, which was a top underwriter of tech stock offerings thanks to Quattrone and the IPO boom of the late 1990s and early 2000.
On Monday, when its online brokerage unit CSFBdirect reported second-quarter results, CSFB USA warned of lackluster earnings that would be significantly lower than second-quarter results a year ago and less than in the first quarter.
