Do Two Bankers Make a Crowd? - Credit Suisse First Boston, Donaldson Lufkin & Jenrette - Company Business and Marketing

The proposed merger of CS First Boston and DLJ could bring two of the West Coast's top bankers under the same roof. Can they work together?

TEN YEARS AGO FRANK QUATTRONE, now the head of Credit Suisse First Boston's technology team, was a little-known banker at Morgan Stanley's Silicon Valley office, taking an obscure company by the name of Cisco Systems public for $18 a share.

Down the coast, another young banker, Ken Moelis, had left the Southern California junk bond shop Drexel Burnham Lambert to join Donaldson Lufkin & Jenrette, hoping to turn the bank's sleepy Los Angeles office into a junk bond juggernaut.

Today Quattrone and Moelis could be considered the two most powerful bankers on the West Coast, running fiefdoms with scores of bankers who bring in hundreds of millions in revenue. So CS First Boston's proposed $11.5 billion purchase of DLJ, announced in August, places the two stars at a crossroads: Can they work together to create an even more powerful franchise?

"It's going to be complementary," insists Quattrone, saying his office's strength in high tech will fit neatly with Moelis' team's strength in junk bonds.

Bringing the two companies together, however, could be difficult. While it's inevitable that some bankers will feel left out because of the merger and will look for jobs elsewhere, the danger is that it could turn into a mass exodus. There are already warning signs. Two weeks ago, CSFB's entire Los Angeles office quit and joined the Lehman Brothers' L.A. office. "The goal of the merger is to enhance the two firms' positive aspects, but the devil is in the details," adds Moelis.

Still, there are reasons to see it as a match made in heaven. Rivals describe the two offices as being scrappy and entrepreneurial, reflecting the bankers who run them, Quattrone and Moelis. The two have a lot in common. Moelis is 42, Quattrone 45. Both are Wharton graduates: Moelis earned his MBA there and Quattrone his B.A. Both have spent their careers as investment bankers, deeply networked in the markets they serve.

There is, however, some overlap between the two businesses that could prove awkward. While CSFB has by far the bigger tech banking business, DLJ's Los Angeles office has increasingly focused on technology and telecom as the junk bond market has dried up over the past two years. Some DLJ bankers, speaking on condition of anonymity, estimate that half of the office's revenue now comes from technology private placement, M&A, secondary offering and IPO business.

Another detail that has the potential to cause headaches is the new hierarchy. Soon after the merger was announced, Moelis was named co-head of investment banking in the Americas for the combined company, while Quattrone was named head of the combined tech groups. That raises an interesting question as to who is the highest-ranking CSFB banker on the West Coast. Quattrone reports to Chuck Ward, the newly named co-chief of global investment banking.

Some rivals say privately that Quattrone has no intention of adding DLJ's 20 technology bankers in L.A. to his own group because he has tried to build a team that deals only with the top-tier companies. By contrast, DLJ has settled for smaller, less high-profile IPOs. As a result, it's likely, the rivals say, that CSFB will cut some of DLJ's tech bankers. In turn, the bank may also lay off some of CSFB's junk bond bankers. "In any merger with overlap there will be some redundancies," says Quattrone. The firms have already discussed this point, so "no surprises" are expected, he adds.

Sources inside DLJ say some tech bankers there have been offered jobs by CSFB's tech group. In fact, the two banks have agreed to comanage an Internet IPO in Los Angeles that's expected to be filed with the Securities and Exchange Commission in the next month.

Still, fusing the two cultures will be challenging, particularly when Quattrone's record of looking out for his own troops is taken into account. Historically, Quattrone has run a very tight-knit group of bankers, from whom he expects and receives a high degree of loyalty. In exchange for that loyalty, Quattrone has provided his bankers insulation from the politics and practices of the bank as a whole -- not to mention generous compensation packages. After leaving Morgan Stanley in 1996, dozens of bankers followed him to Deutsche Bank. Two years later he walked out the door again, and within days dozens followed. A reason for such loyalty? Quattrone at the time told reporters that his departure was partly motivated by a concern that Deutsche was looking for ways to break its contract with the group, which called for a 50-50 split in the earnings brought in by the Silicon Valley practice.

That kind of entrepreneurial spirit -- the idea that the tech practice functions almost as an independent business -- could hinder the relationship between Quattrone's group and any part of DLJ, let alone the L.A. office. "It doesn't make it any easier," says one DLJ banker.

Still, the DLI group in Los Angeles should understand firsthand how Quattrone operates. Before the Internet came along, DLJ's branch office in L.A. was the most powerful outpost away from Wall Street in the U.S. Even today it is DLJ's largest office outside of New York, with 120 bankers. In many respects, Moelis and his group of bankers have carved out the same autonomy that Quattrone has demanded from his employers.

After joining DLJ in 1990, Moelis helped make it the No. 1 bank in high-yield securities. Part of that success came from his knack for landing high-profile clients such as Carl Icahn and Donald Trump.

Moelis, who is thought by many to be L.A.'s top investment banker, has switched gears as the junk bond market hit the doldrums. Through October, the market for high-yield bonds has slipped 50 percent from last year. Within this shrinking market, DLJ continues to be the biggest player, winning 16.6 percent of the high-yield business so far this year.

Still, DLJ's office is starting to turn its attention to technology. Among other deals, it recently raised a $145 million private placement for communications service provider Telepacific, co-led the IPO for online grocer HomeGrocer.com, and managed a $50 million private placement for X:drive, a Web-based storage company in Santa Monica, Calif.

The new opportunities in telecom and technology in Southern California are also getting the attention of some rivals to the north, such as Goldman Sachs' head of technology banking, Brad Koenig. "In Orange County and San Diego there is a significant amount of activity in the communications and semiconductor areas, although it's not at the level of Silicon Valley," Koenig says.

At least not yet. So while most investment banks have only branch offices in the Los Angeles area, none of them have anything near the size of DLJ's office. That puts the pressure on Quattrone and Moelis to find common ground and to recognize the opportunity. "You have two powerful men, two powerful franchises, two sets of loyal bankers," says one DLJ banker, who only agreed to be interviewed if he was not identified. "There could be conflict, but you combine the power of CSFB's platform with the power of DLJ's local presence -- you dominate this market."

COPYRIGHT 2000 Standard Media International
COPYRIGHT 2000 Gale Group