DLJ fallsto Credit Suisse in $13bn deal

The consolidation of the global financial industry gathered pace yesterday when Credit Suisse Group confirmed that it is to buy Donaldson, Lufkin & Jenrette, the seventh-largest US investment firm, for $13.4bn (£9.2bn) in cash and stock.

The consolidation of the global financial industry gathered pace yesterday when Credit Suisse Group confirmed that it is to buy Donaldson, Lufkin & Jenrette, the seventh-largest US investment firm, for $13.4bn (£9.2bn) in cash and stock.

Overlap between the two firms' activities raised fears of layoffs once the merger is complete. Combined, the companies would have 26,000 employees worldwide. Speculation also grew that the deal would trigger a new wave of consolidation on Wall Street involving second-tier firms.

Credit Suisse said it would pay $90 a share for DLJ, which is almost three-times book value at the market close on Monday. As part of the deal, Axa Financial, a subsidiary of the French insurance giant Axa, is selling its roughly 71 per cent holding in DLJ to Credit Suisse for $8.1bn.

Credit Suisse laid out plans to fold DLJ into its own investment banking subsidiary, Credit Suisse First Boston. CSFB has headquarters in London and in New York. It will operate under the name Credit Suisse First Boston.

This is the second bold move by a Swiss bank this summer. In July, UBS, the largest Swiss banking group, announced plans to swallow the New York-based brokerage PaineWebber in a deal worth about $11bn.

With additional mergers widely anticipated, all eyes will be on firms like Bear Stearns, Lehman Brothers and JP Morgan. Just three players - Merrill Lynch, Goldman Sachs and Morgan Stanley Dean Witter - control more than 50 per cent of the underwriting and mergers businesses.

A bonus pool worth $1.2bn has been set aside by Credit Suisse to keep DLJ employees from fleeing. But most analysts agreed that a deep paring of the payroll was inevitable after the merger. Pre-tax cost savings from the deal will reach between $750m and $1bn by 2002, Credit Suisse said.

Officials at CFSB insisted privately that no more than 2,600 people - from analysts to bankers and back-office staff - would eventually lose their positions as a result of the merger, or 10 per cent of the combined workforce. Some analysts predicted that the final tally could be twice that number, however.

Joe Roby, DLJ's chairman, who will be chairman of the combined firm, underplayed the threat of layoffs in Europe, where business continues to grow. "Each of the firms needs more firepower in Europe than either of them can provide separately," he told CNBC, the business news network. Most at risk, probably, are workers in New York, where DLJ has more than 80 of its workforce.

As one, the two companies promise to be a formidable force. DLJ is adding its sizeable junk bond business to the mix as well as its respected private equity operations in the US, with $125bn in assets under management. For the first half of this year, the combined bank would have ranked fourth in global equity underwriting and third in advising on global mergers and acquisitions.

The deal will boost DLJ in Europe and Asia and give it greater access to hi-tech initial public offerings. DLJ has been struggling to become a convincing force globally, doubling its workforce to 11,300 in the past four years. It has also been one of the most generous firms on Wall Street, with compensation accounting for 54.6 per cent of its revenue in the second quarter. "This powerful combination substantially strengthens CSFB's competitive position as one of the world's leading investment banking services," Credit Suisse said.