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The New Referee At Cs First Boston


Finance

THE NEW REFEREE AT CS FIRST BOSTON

On paper, it's the international investment banking world's "Dream Team." Led by talented executives in New York, London, and Tokyo, and backed by a wealthy Swiss parent, CS First Boston Group (CSFB) has all the elements of a global financial powerhouse. In practice, though, it's a long way from the Olympics.

For years, bruising rivalries among CSFB's three geographic divisions--First Boston Corp. in New York, Credit Suisse First Boston in London, and CS First Boston Pacific Inc. in Tokyo--have kept the firm from reaching its potential. Profits for the group have been erratic (chart). Now, CSFB seems headed for a major overhaul. On Mar. 4, Hans-J org Rudloff, chairman of CSFB's European operations, was replaced by David C. Mulford, the U.S. Treasury's top international official for eight years. Even senior CSFB executives in London were surprised by the switch--viewed as the handiwork of Rainer E. Gut, chairman of parent CS Holding and John M. Hennessy, CSFB's chairman. The 55-year-old Mulford just joined the CSFB's New York unit last November.

Rudloff, for his part, is being kicked upstairs to the board of Zurich-based CS Holding, owner of a 64% stake in CSFB and the Swiss bank Credit Suisse. Although Rudloff says he will be overseeing European strategy, he will be losing his key London power base.

LOW PAY. The shakeup in London comes only days after troubles surfaced in New York. Thomas Sexton, head of the key New York-based fixed-income group, recently resigned, along with 26 professionals in the fixed-income area. Ten energy investment bankers defected to Merrill Lynch & Co. A common complaint, according to New York headhunter Joan Zimmerman of G.Z. Stephens, was frustration with compensation that was low by Wall Street standards and held down by weak performances in London and Tokyo. Archibald Cox Jr., First Boston's CEO, admits the dissatisfaction with pay levels, but he insists that the departures won't hurt performance.

Mulford's job is to boost international profitability by smoothing relations between CSFB's various units, but he won't have an easy time. The New York, London, and Tokyo operations have a history of acting more like rivals than partners. "These are still three firms," sniffs one rival, "when other banks approach the world as one."

Mulford is inheriting other serious problems. Goldman, Sachs International Ltd. analyst Susan E. Sternglass figures that in 1992, London generated less than $20 million in earnings, as much as 20% below 1991's level. The firm was hammered by the currency turmoil in Europe and high operational costs. In international equity deals, which the London unit pioneered, the unit slipped to fifth place in 1992, with just 6.5% of the market. And even before it moved into the half-empty office building it owns in Canary Wharf, the London unit was forced to take property write-offs there, says one source.

STRONG TIES? In hindsight, Rudloff's departure should not have been a total surprise. As London chief during the 1980s, he acquired a vaunted reputation as an innovator and industry celebrity. But now he is taking some of the blame for frosty relations between London and New York. Rivals and CSFB insiders alike say London has been reluctant to pass European clients to New York to develop U.S. financings. In fact, the flow has been largely the other way. Witness the recent $2 billion Chrysler Corp. global equity deal, which First Boston scooped in the U.S. and passed along to London. A similar deal is shaping up for RJR Nabisco Inc.'s global equity deal, worth $1.7 billion. In New York, Cox says such problems are on the wane. "We have seen and will continue to see more cooperation," he says.

Mulford is singing the same tune. "I will advance and cement cooperation worldwide," Mulford says. "I need to make absolutely clear that $1 of revenue generated in New York, London, or Tokyo is as good as anywhere else."

But it is not clear that Mulford is ideally suited for this task. In Washington he acquired a reputation for abrasiveness--although he did get good marks in team-building. While well-known for his work on Latin American debt, Mulford is still an unfamiliar figure at CFSB. His main asset is a close relationship with both Credit Suisse's Gut and CSFB's Hennessy, formed when the three were young bankers back in the 1960s and 1970s. But those ties could be strained if CSFB's global fortunes fail to improve.Richard A. Melcher in London, with Leah Nathans Spiro in New York


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