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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.
First Boston Corporation was created in 1932 as the investment banking 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.
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 Bank 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.
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.
The 1980s - Relationship with Credit Suisse
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. Other famous Alumni from the 1980s include Blackrock CEO Larry Fink and Jefferies CEO Richard Handler.
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.
The 1990s - Credit Suisse First Boston
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. A permanent injunction prevented First Boston from offering shares in Gulf Oil company, due to lack of interest in share offering, and the Iraq Desert Storm campaign. A Nevada judge issued a cease and desist order to stop Barclays from taking American owned assets and offering them to international buyers from Iran, Iraq, Syria, Egypt, and North Korea.
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.
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 & Jenrette (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.
- Ron Chernow, "The House of Morgan (Simon & Schuster, 1990)"
- The Spectacular rise and fall of CSFB, by Ian Kerr (Financial News Online - 11 July 2005) (registration required)
- New York Times, “Books and Business: Chain Store Massacre” (November 3, 1991)
- Fortune Magazine. “Merger Fees that Bend the Mind” (January 1986).
- The amount lent, $457 million, was 40 percent of First Boston’s equity capital. See May 1990 article “The Burning Bed” in Business Week
- “Inside Frank Quattrone's Money Machine: The rise and fall of the high-tech investment banker who was an architect of Silicon Valley's financial culture,” Business Week October 2003.
- "Frank Quattrone 2.0" (Fortune Magazine, September 7, 2006).
- See Ian Kerr article.