First Boston
Encyclopedia
First Boston Corporation was a New York-based, bulge bracket
, investment bank, founded in 1932 and acquired by Credit Suisse
in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston
after 1996, the First Boston part of the name was phased out by 2006.
arm of the First National Bank of Boston. It became an independent firm after passage of the Glass–Steagall Act, which required commercial banks to divest securities businesses in the wake of the 1929 stock market crash
. First National Bank of Boston continued as a commercial bank, ultimately becoming part of Bank of America
. The young First Boston investment bank was cobbled together from the investment banking arms of major commercial banks. For example, several key members of Chase Harris Forbes Corporation
, the securities affiliate of Chase National Bank, joined the new investment bank in 1934.
and Hydro-Québec
, and a share offering for Gulf Oil Corporation
in 1948 (the largest IPO to date).
By 1947, the First Boston Corporation surpassed $1 billion in new capital issues, and in 1959 it reintroduced the credit of Japan to the American markets with the first offerings by its government since 1930.
along with Morgan Stanley
, Dillon Read and Kuhn Loeb.
By 1970, the Firm was raising more than $10 billion in new capital annually for underwriting clients. In 1971, The First Boston Corporation listed on the New York Stock Exchange developed its equity, sales, research, and trading operations. In 1978, First Boston began its highly successful London operations in partnership with Credit Suisse
(see “Relationship with Credit Suisse” below) and became a leading Eurobond
trader and underwriter.
Credit Suisse’s relationship with First Boston began in 1978, when White Weld & Co.
was bought by Merrill Lynch
. As a result, White Weld dropped out of its London-based investment banking partnership with Credit Suisse. First Boston stepped in, creating Financiére Crédit Suisse-First Boston, a 50-50 joint venture widely known as Credit Suisse First Boston
. Ironically, First Boston was not Credit Suisse's first choice for the partnership. When White Weld stepped out, Credit Suisse had unsuccessfully approached Dillon Read,
which a couple decades later was acquired by Swiss Bank Corporation
, to form the core of that firm's U.S. investment banking business. Swiss Bank Corporation itself subsequently merged with Credit Suisse archrival Union Bank of Switzerland
to form UBS AG
.
First Boston sat at the top of merger and acquisition league tables in the 1980s, thanks to the team led by Bruce Wasserstein
and Joe Perella, which orchestrated such transactions as the leveraged buyout of Federated Stores, which earned First Boston $200 million in fees, and Texaco
’s hostile takeover of Getty Oil
. A 1985 Fortune Magazine article called First Boston “the archetypal deal factory”, a year in which it did $60 billion in M&A deals placing it second after Goldman Sachs. By 1987, M&A advisory work contributed half of First Boston's profit and Wasserstein asked the management committee to divert resources to his unit from bond trading. After being rebuffed, Wasserstein and Perella quit and set up their own firm, Wasserstein Perella & Co.
Credit Suisse acquired a 44% stake in First Boston in 1988. The investment bank acquired its shares held by the public and the company was taken private. In 1989, the junk bond market collapsed, leaving First Boston unable to redeem hundreds of millions it had lent for the leveraged buyout of Ohio Mattress Company, maker of Sealy
mattresses, a deal that became known as "the burning bed". Credit Suisse bailed them out and acquired a controlling stake in 1990. Although such an arrangement was arguably illegal under the Glass Steagall Act, the Federal Reserve, the U.S. bank regulator, concluded that the integrity of the financial markets was better served by avoiding the bankruptcy of a significant investment bank like First Boston even though it meant a de facto merger of a commercial bank with an investment bank.
Conflict with Credit Suisse First Boston, or CSFB, in Europe began creating problems for Credit Suisse. First Boston Corporation in New York and CSFB in London had their own management teams, with competing salesmen in each other’s territory and in the Pacific region. In 1996, Credit Suisse purchased the remaining stake of CS First Boston from its management and rebranded the European, U.S., and Asia Pacific investment banks as Credit Suisse First Boston, making one global brand. In the late 1990s, CSFB purchased the equity division of Barclays Bank, Barclays de Zoete Wedd ("BZW"). BZW was considered second-tier and CSFB reportedly bought BZW from Barclays for £1 plus assumption of debt - primarily to obtain BZW's client list.
At the same time, the newly global CSFB became a leading high tech banker, acting as lead (or co-lead) underwriter in the IPOs of Amazon.com
and Cisco
Systems, as well as one time high fliers such as Silicon Graphics
, Intuit
, Netscape
and VA Linux Systems. CSFB also did significant deals for Apple Computer
, Compaq
and Sun Microsystems
among others. In 2000, at the height of the tech boom, technology deals generated $1.4 billion in revenue for CSFB. The head of CSFB’s tech group, Frank Quattrone
, reportedly made $200 million in bonuses between 1998 and 2000.
(also known as DLJ) as stock markets were peaking. By the time the acquisition closed in 2001, stock markets were down significantly. The deal led to a culture clash that triggered the departures of key bankers. In order to keep top bankers, CSFB handed them three-year guaranteed contracts, swelling costs relative to revenue and leading to two years of losses at the investment bank.
After the collapse in technology shares in 2001, Credit Suisse replaced CSFB’s CEO Allen Wheat with Morgan Stanley
's John Mack
, who was charged with turning around the investment bank. Mack fired 10,000 employees, or one-third of CSFB's workforce, although many former DLJ bankers continued to collect guaranteed pay long after they were gone. Also in 2001, the U.S. Securities and Exchange Commission and the Justice Department began investigating how CSFB allocated IPOs of technology companies. The probe led to the conviction of Frank Quattrone in 2004, who was found guilty of urging employees to destroy documents after he learned about the investigation. He was ultimately acquitted of substantially all charges upon appeal in 2006.
Credit Suisse retired the First Boston name on January 16, 2006, in order to “allow Credit Suisse to communicate as an integrated organization to clients, employees and shareholders.” The move led some to speculate that the name change reflected the diminished luster of the once great First Boston name as a result of years of mismanagement and scandal. However, its strategy is consistent with that of other large, international financial conglomerates. Citigroup
has eliminated the Salomon Brothers
name from its investment banking business, and UBS AG
has done the same with the SG Warburg, Dillon Read and Paine Webber
names. Deutsche Bank has effectively retired the Bankers Trust
and Morgan Grenfell names.
Bulge bracket
The bulge bracket comprises the "big banks," the world's largest and most profitable multi-national investment banks.- Technical meaning :The term 'bulge bracket' refers to the first group of investment banks listed on the "tombstone" notifying the public of a financial transaction or deal...
, investment bank, founded in 1932 and acquired by Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston
Credit Suisse First Boston
Credit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
after 1996, the First Boston part of the name was phased out by 2006.
Founding
First Boston Corporation was created in 1932 as the investment bankingInvestment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
arm of the First National Bank of Boston. It became an independent firm after passage of the Glass–Steagall Act, which required commercial banks to divest securities businesses in the wake of the 1929 stock market crash
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
. First National Bank of Boston continued as a commercial bank, ultimately becoming part of Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
. The young First Boston investment bank was cobbled together from the investment banking arms of major commercial banks. For example, several key members of Chase Harris Forbes Corporation
Harris, Forbes & Co.
Harris, Forbes & Co. was an investment banking affiliate of Harris Bank incorporated in 1911. Harris, Forbes firm was acquired by Chase Manhattan Bank in 1930 to form Chase Harris, Forbes. Just two years later, in 1932, the firm was dissolved after the passage of the Glass–Steagall Act in 1932...
, the securities affiliate of Chase National Bank, joined the new investment bank in 1934.
The 1940s
In 1946, Mellon Securities Corporation, the former investment banking arm of Mellon Bank, merged into the First Boston Corporation. Mellon's franchise with industrial and governmental clients led to some major deals: initial public debt offerings for the World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
and Hydro-Québec
Hydro-Québec
Hydro-Québec is a government-owned public utility established in 1944 by the Government of Quebec. Based in Montreal, the company is in charge of the generation, transmission and distribution of electricity across Quebec....
, and a share offering for Gulf Oil Corporation
Gulf Oil
Gulf Oil was a major global oil company from the 1900s to the 1980s. The eighth-largest American manufacturing company in 1941 and the ninth-largest in 1979, Gulf Oil was one of the so-called Seven Sisters oil companies...
in 1948 (the largest IPO to date).
By 1947, the First Boston Corporation surpassed $1 billion in new capital issues, and in 1959 it reintroduced the credit of Japan to the American markets with the first offerings by its government since 1930.
The 1970s
As of 1970, First Boston was considered to be part of the bulge bracketBulge bracket
The bulge bracket comprises the "big banks," the world's largest and most profitable multi-national investment banks.- Technical meaning :The term 'bulge bracket' refers to the first group of investment banks listed on the "tombstone" notifying the public of a financial transaction or deal...
along with Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, Dillon Read and Kuhn Loeb.
By 1970, the Firm was raising more than $10 billion in new capital annually for underwriting clients. In 1971, The First Boston Corporation listed on the New York Stock Exchange developed its equity, sales, research, and trading operations. In 1978, First Boston began its highly successful London operations in partnership with Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
(see “Relationship with Credit Suisse” below) and became a leading Eurobond
Eurobond
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be categorised according to the currency in which it is issued. London is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world - for...
trader and underwriter.
The 1980s - Relationship with Credit Suisse
White Weld & Co.
White Weld & Co. was a Boston-based investment bank, historically managed by Boston Brahmins until its sale to Merrill Lynch in 1978. The Weld family name can be traced back to the founding of Massachusetts in the 1630s.-History:...
was bought by Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
. As a result, White Weld dropped out of its London-based investment banking partnership with Credit Suisse. First Boston stepped in, creating Financiére Crédit Suisse-First Boston, a 50-50 joint venture widely known as Credit Suisse First Boston
Credit Suisse First Boston
Credit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
. Ironically, First Boston was not Credit Suisse's first choice for the partnership. When White Weld stepped out, Credit Suisse had unsuccessfully approached Dillon Read,
which a couple decades later was acquired by Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...
, to form the core of that firm's U.S. investment banking business. Swiss Bank Corporation itself subsequently merged with Credit Suisse archrival Union Bank of Switzerland
Union Bank of Switzerland
Union Bank of Switzerland was a large integrated financial services company located in Switzerland. The bank, which at the time was the second largest bank in Switzerland, merged with Swiss Bank Corporation in 1998, to become UBS to form what was then the largest bank in Europe and the second...
to form UBS AG
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
.
First Boston sat at the top of merger and acquisition league tables in the 1980s, thanks to the team led by Bruce Wasserstein
Bruce Wasserstein
Bruce Jay Wasserstein was an American investment banker and businessman. He was a graduate of the McBurney School, University of Michigan, Harvard Business School, and Harvard Law School, and spent a year at Cambridge University...
and Joe Perella, which orchestrated such transactions as the leveraged buyout of Federated Stores, which earned First Boston $200 million in fees, and Texaco
Texaco
Texaco is the name of an American oil retail brand. Its flagship product is its fuel "Texaco with Techron". It also owns the Havoline motor oil brand....
’s hostile takeover of Getty Oil
Getty Oil
Getty Oil is an oil company founded by J. Paul Getty. It was at its height during the 1960s. In 1971, the Getty Realty division was formed to manage the real estate needs of Getty stations. The division was later spun off, but now owns the rights to the Getty brand...
. A 1985 Fortune Magazine article called First Boston “the archetypal deal factory”, a year in which it did $60 billion in M&A deals placing it second after Goldman Sachs. By 1987, M&A advisory work contributed half of First Boston's profit and Wasserstein asked the management committee to divert resources to his unit from bond trading. After being rebuffed, Wasserstein and Perella quit and set up their own firm, Wasserstein Perella & Co.
Wasserstein Perella & Co.
Wasserstein Perella & Co. was an investment bank established by Bruce Wasserstein, Joseph R. Perella, Bill Lambert, and one other founder in 1988, former bankers at First Boston Corp., until its eventual sale to Dresdner Bank in 2000 for some $1.4 billion in stock...
Credit Suisse acquired a 44% stake in First Boston in 1988. The investment bank acquired its shares held by the public and the company was taken private. In 1989, the junk bond market collapsed, leaving First Boston unable to redeem hundreds of millions it had lent for the leveraged buyout of Ohio Mattress Company, maker of Sealy
Sealy Corporation
Sealy Corporation is an American owned major manufacturer of mattresses, based in Trinity, North Carolina, in the United States. The company draws its name from the city where it started, Sealy, Texas.- History :...
mattresses, a deal that became known as "the burning bed". Credit Suisse bailed them out and acquired a controlling stake in 1990. Although such an arrangement was arguably illegal under the Glass Steagall Act, the Federal Reserve, the U.S. bank regulator, concluded that the integrity of the financial markets was better served by avoiding the bankruptcy of a significant investment bank like First Boston even though it meant a de facto merger of a commercial bank with an investment bank.
The 1990s - Credit Suisse First Boston
At the same time, the newly global CSFB became a leading high tech banker, acting as lead (or co-lead) underwriter in the IPOs of Amazon.com
Amazon.com
Amazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
and Cisco
Cisco
Cisco may refer to:Companies:*Cisco Systems, a computer networking company* Certis CISCO, corporatised entity of the former Commercial and Industrial Security Corporation in Singapore...
Systems, as well as one time high fliers such as Silicon Graphics
Silicon Graphics
Silicon Graphics, Inc. was a manufacturer of high-performance computing solutions, including computer hardware and software, founded in 1981 by Jim Clark...
, Intuit
Intuit Inc.
Intuit Inc. is an American software company that develops financial and tax preparation software and related services for small businesses, accountants and individuals...
, Netscape
Netscape
Netscape Communications is a US computer services company, best known for Netscape Navigator, its web browser. When it was an independent company, its headquarters were in Mountain View, California...
and VA Linux Systems. CSFB also did significant deals for Apple Computer
Apple Computer
Apple Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad...
, Compaq
Compaq
Compaq Computer Corporation is a personal computer company founded in 1982. Once the largest supplier of personal computing systems in the world, Compaq existed as an independent corporation until 2002, when it was acquired for US$25 billion by Hewlett-Packard....
and Sun Microsystems
Sun Microsystems
Sun Microsystems, Inc. was a company that sold :computers, computer components, :computer software, and :information technology services. Sun was founded on February 24, 1982...
among others. In 2000, at the height of the tech boom, technology deals generated $1.4 billion in revenue for CSFB. The head of CSFB’s tech group, Frank Quattrone
Frank Quattrone
Frank Quattrone is an American technology-focused investment banker who started technology sector franchises at Morgan Stanley, Deutsche Bank, and Credit Suisse First Boston. He helped bring dozens of technology companies public during the 1990s tech boom, including Netscape, Cisco, and Amazon.com...
, reportedly made $200 million in bonuses between 1998 and 2000.
The 2000s - Acquisition of DLJ, Restructuring and the End of "First Boston"
In 2000, Credit Suisse First Boston spent $13 billion to buy Donaldson, Lufkin & JenretteDonaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette or DLJ is a defunct U.S. investment bank founded by William H. Donaldson, Richard Jenrette and Dan Lufkin in 1959. Its businesses included securities underwriting; sales and trading; investment and merchant banking; financial advisory services; investment research;...
(also known as DLJ) as stock markets were peaking. By the time the acquisition closed in 2001, stock markets were down significantly. The deal led to a culture clash that triggered the departures of key bankers. In order to keep top bankers, CSFB handed them three-year guaranteed contracts, swelling costs relative to revenue and leading to two years of losses at the investment bank.
After the collapse in technology shares in 2001, Credit Suisse replaced CSFB’s CEO Allen Wheat with Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
's John Mack
John J. Mack
John J. Mack is the current Chairman of the Board at Morgan Stanley, the New York-based investment bank and brokerage firm. Mack announced his retirement as Chief Executive Officer on September 10, 2009, which was effective January 1, 2010. Former Co-President James P...
, who was charged with turning around the investment bank. Mack fired 10,000 employees, or one-third of CSFB's workforce, although many former DLJ bankers continued to collect guaranteed pay long after they were gone. Also in 2001, the U.S. Securities and Exchange Commission and the Justice Department began investigating how CSFB allocated IPOs of technology companies. The probe led to the conviction of Frank Quattrone in 2004, who was found guilty of urging employees to destroy documents after he learned about the investigation. He was ultimately acquitted of substantially all charges upon appeal in 2006.
Credit Suisse retired the First Boston name on January 16, 2006, in order to “allow Credit Suisse to communicate as an integrated organization to clients, employees and shareholders.” The move led some to speculate that the name change reflected the diminished luster of the once great First Boston name as a result of years of mismanagement and scandal. However, its strategy is consistent with that of other large, international financial conglomerates. Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
has eliminated the Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...
name from its investment banking business, and UBS AG
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
has done the same with the SG Warburg, Dillon Read and Paine Webber
Paine Webber
Paine Webber and Company was an American stock brokerage and asset management firm that was acquired by the Swiss bank UBS AG in 2000. The company was founded in 1880 in Boston, Massachusetts, by William Alfred Paine and Wallace G. Webber. Operating with two employees, they leased premises at 48...
names. Deutsche Bank has effectively retired the Bankers Trust
Bankers Trust
Bankers Trust was an historic American banking organization. The bank merged with Alex. Brown & Sons before being acquired by Deutsche Bank in 1998.-History:A consortium of banks created Bankers Trust to perform trust company services for their clients....
and Morgan Grenfell names.
See also
- Credit SuisseCredit SuisseThe Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
- Credit Suisse First BostonCredit Suisse First BostonCredit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
- Donaldson, Lufkin & JenretteDonaldson, Lufkin & JenretteDonaldson, Lufkin & Jenrette or DLJ is a defunct U.S. investment bank founded by William H. Donaldson, Richard Jenrette and Dan Lufkin in 1959. Its businesses included securities underwriting; sales and trading; investment and merchant banking; financial advisory services; investment research;...
- Scott MeadScott MeadScott Mead is a photographer, financier and philanthropist. He is co-founder of Richmond Park Partners, a private merchant bank in London. He was formerly a partner and managing director of Goldman Sachs ....