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Maybe Low-Key Is The Answer at CSFB


Brady W. Dougan bears few of the outward signs of power on Wall Street. He doesn't wear flashy cuff links. He doesn't play golf. And he doesn't drink fine wines -- just Diet Coke. Can this mild-mannered Midwesterner tame one of the Street's most unruly investment banks, Credit Suisse First Boston (CSR)?

Seven months into the job, Dougan faces tough odds. His predecessors over the past 15 years have survived an average of only 2 1/2 years, as executives at CSFB's parent, Credit Suisse Group in Zurich, often grew weary of the American offshoot's lackluster performance. The last, veteran, dealmaker John J. Mack, arrived from Morgan Stanley (MWD) to much fanfare in 2001, and left last July.

After several years of restructuring, CSFB's 18,000 employees still racked up only about $1 billion in profits last year, vs. $1.3 billion at Bear, Stearns Cos. (BSC), with 11,000 troops, and $2.4 billion at Lehman Brothers Inc. (LEH), with almost 20,000. Its share of lucrative merger advisory work has shrunk from 25% five years ago to 10% now, according to Thomson Financial. "Their record of the last five years has been so poor [that] it's become a much bigger mountain for them to climb," says Piers Brown, Commerzbank Securities bank analyst in London.

None of this deters the 45-year-old Dougan -- Wall Street's youngest CEO and the only one with much overseas experience. Unlike past CEOs who strived to expand the firm's reach, Dougan aims to remake CSFB into a nimbler, more specialized player. He wants to make CSFB as profitable as its rivals by building on its traditional strengths, such as overseas expertise and junk-bond financing. CSFB is the world's second-largest junk-bond issuer, with a 13% share of the business. Unlike rivals, he wants his bankers to focus on selling clients only what they ask for, instead of trying to be everything to everybody. And he wants them to work with their Swiss owners rather than fight them.

Dougan is facing his share of skeptics. Some say he started on the wrong foot in December by spinning off the firm's private-equity business and letting go one of its top junk-bond bankers. His new strategy of breaking down customers into groups based on which services they use -- and how much business they provide -- worries some clients who fear they'll get second-class treatment. And he's being forced to pay up to keep high-priced talent. In January, CSFB told its bankers that even though they didn't perform as well as their peers in 2004, they will get bonuses in line with the rest of Wall Street.

Still, Dougan is undaunted. He has set stiff financial goals, promising investors that he'll more than double earnings, to $2.5 billion, by 2007. He has also vowed to almost double the pretax profit margin and return on equity over the same period, both to 20%. "It's the beginning of a new era at CSFB," says Dougan. "I know some people are skeptical. I'm looking forward to showing people that we can do it."

That Dougan is even on Wall Street, much less setting goals for one of its major firms, is a surprise. He was raised in a tiny town, Murphysboro, Ill., the youngest of five siblings born to a railway dispatcher. A whiz kid, he took undergraduate courses by day and business school courses by night at the University of Chicago while working in the controller's office at a local bank. After earning his MBA at age 22, Dougan joined the investment-banking division of Bankers Trust Corp. That took him to New York, London, and then Tokyo, where he ran the bank's Asian derivatives business at the age of 24. CSFB recruited him in 1990.

He got the top job last year in part because, unlike the commanding Mack, the unassuming Dougan seemed unlikely to have a clash of egos with Credit Suisse Group CEO Oswald J. Gr?bel, 16 years his senior. As head of equities in the late 1990s, Dougan reported directly to Gr?bel, then chief of CSFB's securities division. And like Gr?bel, he was against selling CSFB to another bank last summer. "No one thinks Brady is dressing us up for a sale," says Paul Calello, CSFB's head of the Asia Pacific Region.

But that doesn't mean Dougan isn't ratcheting up the pressure on CSFB managers. He's trying to rein in the firm's freewheeling culture, setting goals, and requiring managers to make frequent progress reports, sometimes weekly. "You can't talk to Brady for long without hearing the word 'accountable,"' says President Brian D. Finn.

Dougan believes his best chance at outmaneuvering his rivals is to use his, and CSFB's, overseas knowhow. In Europe, he aims to invest more resources in the exploding market for junk bonds and securitized commercial-building mortgages, already huge CSFB strengths. In developing countries such as Brazil, Russia, and China, Dougan is getting bankers and traders to focus on rapidly growing outfits that need more advice and assistance in issuing securities.

Dougan is also trying to rekindle CSFB's killer spirit on the trading floor. He is giving traders more capital so they can take greater risks -- both for clients and for the firm's own account. And he is expanding the types of trades on the firms' own books to include not just bonds but also stocks and commodities such as oil. "We had been making less money than the competition because we were taking less risk," he says. "We'll close the gap."

For his strategy to work, Dougan needs to get the troops on his side. So he has been holding serial meetings with employees. He is asking for their ideas on improving the firm, attending several dinners some evenings, and working marathon hours. Even so, some top bankers and traders may opt to leave in February, after they get their bonuses. At a meeting with managing directors on Feb. 2, Dougan will have his last chance to persuade people to stay. If they don't buy into his strategy, though, Dougan says he wants them to go.

Behind his desk, Dougan keeps a gift colleagues gave him when he got his new job. It's a set of magnets on a board: "Stick to the plan," reads one. "Manage through change," says another. The message: This most understated of Wall Street chiefs is not about to let up.

By Emily Thornton in New York, with Laura Cohn in London and Jonathan Wheatley in S?o Paulo


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