Probe Not Slowing CSFB Business
Brokerage Credit Suisse First Boston continues to do brisk business as an underwriter and merger advisor so far this year, despite being hit by allegations that it may have violated securities rules in the 1999 and 2000 heyday of new stock offerings.
Data show that CSFB has maintained last year’s third-place ranking as a stock underwriter in terms of the dollar value of deals it has managed, though it has slipped slightly in bond underwriting and in merger advisory.
CSFB has been at the center of a widening government-led investigation into how Wall Street firms allocated shares of coveted initial public offerings.
CSFB, and several of its high-ranking employees, were told earlier this year they may be charged with violating securities rules, amid a probe that began last year by the Securities and Exchange Commission and the U.S. Attorney’s office in Manhattan.
What’s more, an internal investigation at CSFB has led to several senior staffers being placed on administrative leave.
Regulators are investigating whether CSFB and other major Wall Street brokerages received inflated commissions from clients in exchange for hot IPO shares. The concern is that any such commissions could have amounted to illegal kickbacks.
Despite a torrent of negative publicity from the probe, CSFB continues to earn major fees from underwriting IPOs and corporate bonds, and from merger and acquisition work, according to Thomson Financial, a New Jersey data firm.
CSFB recently has led or co-led such high-profile stock deals as a $8.68-billion IPO for Kraft Foods--the second-largest IPO ever--as well as some of the better-performing IPOs this year, such as a $107-million deal for Tarzana-based Unilab Corp. that rocketed 44% on its first trading day.
“In almost every area we compete in, we have a top analyst, broad distribution, and we have a capital base to lend very aggressively,” said Michael Hooks, a managing director with CSFB in Los Angeles.
Through last Thursday, CSFB ranked third in all U.S. equity underwritings, including IPOs and secondary issues, year to date: It has managed or co-managed $9.2 billion in stock offerings, Thomson data show.
Goldman Sachs & Co. led the rankings with $10.9 billion in equity deals.
In terms of number of stock offerings CSFB ranks No. 2 this year, with 33 deals; Merrill Lynch & Co. ranks No. 1, with 41 deals.
For all of 2000 CSFB also ranked third in dollar value of equity deals underwritten, with $23.3 billion total.
In corporate debt underwriting, for both junk bonds and investment grade securities, CSFB ranks seventh so far this year, according to Thomson Financial. That is down from sixth place for all of 2000.
In merger advisory work CSFB has placed third so far this year, advising corporate clients on deals worth $96.7 billion. For all of 2000 it ranked second, Thomson data show.
But the number of merger deals in which CSFB has been involved as an advisor totals 102 this year, more than any other major brokerage.
Wall Street sources say the probe publicity isn’t being used by CSFB’s rivals to try and woo corporate business away from the firm because many other brokerages also are being scrutinized by regulators.
“The SEC has targeted the whole universe of Wall Street firms,” said one banker at a large firm. “So as a matter of principle we wouldn’t use it. This is a look at industry-wide practices.”
Indeed, under the federal probe, major brokerages besides CSFB, including Morgan Stanley Dean Witter and Goldman, have acknowledged receiving information requests related to their IPO activities.
Still, CSFB is the only firm known to have suspended employees as the investigation has deepened. In addition, star CSFB technology investment banker Frank Quattrone and his team in Silicon Valley have been a focus of media coverage because they helped make the firm the largest IPO underwriter last year.
“The corporate clients looking for underwriters right now would be concluding that CSFB isn’t alone in this,” said Samuel Hayes, a professor of investment banking at Harvard University. “The kinds of conflicts being alleged at CSFB could have been going on at all the firms.”
Also, companies that might have selected CSFB to work on a deal before the probe news broke might not want to switch to a new banker now, some Wall Streeters said.
“In this volatile market, you don’t want to switch horses in mid-stream,” Hayes said.
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Top Underwriters and Advisors This Year
Brokerage Credit Suisse First Boston continues to hold a large share of the U.S. stock underwriting and merger-advisory markets this year, despite a torrent of negative publicity about its practices in allocating hot new stock offerings in recent years. The top seven brokerages in stock underwriting, merger advisory and corporate bond underwriting, Jan. 1 through Thursday:
Common stock underwriting (IPOs and secondaries)
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Proceeds No. of Brokerage (millions) Rank issues Goldman Sachs & Co. $10,915 1 27 Morgan Stanley 10,772 2 19 Credit Suisse First Boston 9,191 3 33 Salomon Smith Barney 7,269 4 19 Merrill Lynch & Co. 6,765 5 41 Lehman Bros. 4,364 6 17 Banc of America Securities 2,634 7 7
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Merger advisory services
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Deal values No. of Brokerage (millions) Rank deals Goldman Sachs & Co. $130,999 1 73 Morgan Stanley 116,801 2 62 Credit Suisse First Boston 96,692 3 102 Merrill Lynch & Co. 71,941 4 46 J.P. Morgan 53,836 5 64 Salomon Smith Barney 44,456 6 62 Lehman Bros. 23,346 7 43
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Corporate debt underwriting (investment grade and junk)
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Proceeds No. of Brokerage (millions) Rank issues Salomon Smith Barney $86,429 1 236 J.P. Morgan 55,212 2 206 Merrill Lynch & Co Inc 42,263 3 498 Morgan Stanley 38,676 4 352 Lehman Brothers 34,400 5 104 Goldman Sachs & Co 32,904 6 94 Credit Suisse First Boston 29,986 7 108
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In underwriting, full credit for a deal goes to the “book” manager; credit is shared for co-managed offerings.
Source: Thomson Financial
