CSFB To Buy Back Online Brokerage Subsidiary

Caroline Maxwell, InvestorsOffshore.com

28 March 2001

Credit Suisse First Boston, the parent company of CSFB Direct (acquired as DLJ Direct in November of last year after the company's take-over of US based Donaldson, Lufkin & Jenrette) announced recently that it intends to repurchase all outstanding tracking stock shares in the online brokerage. CSFB announced yesterday that it would pay $4 for each of the 18.4 million shares owned by the public, in a move which has raised questions amongst analysts and shareholders alike. Greg Smith, an analyst at JP Morgan H&Q expressed the confusion felt by many: 'Four dollars is a low-ball offer and significantly undervalues the CSFB franchise.' The proposed buyback values the company (whose market capitalisation at the peak of the dot-com boom was around $5 billion) at just $4 million.

Times have undoubtedly been lean for online brokerages, following the collapse of the technology market in which many new and inexperienced investors lost their money, and vowed never to return to the stock markets (or at least not without a full service broker holding their hand!) This resulted in a sharp fall in online trading, which in turn caused a substantial fall in commissions.

Many online brokers have spent millions trying to reverse the trend, but seemingly to no avail- CSFB Direct alone spent an extra $6 million in 're-branding costs' last quarter (which drove its average cost of acquiring new customers to nearly twice the industry average) to try and coax nervous investors back to the markets, but was still forced to close one of its four call centres and cut 150 employees as a result of the continued trading slowdown.

Robert Sobhani, an analyst with Banc of America explained the thinking behind CSFB's latest move: 'As times have gotten tougher, owning the rest of CSFB Direct allows [them] to make restructuring moves more easily without public scrutiny' and the online brokerage's chief executive, Blake Darcy echoed this yesterday, speaking of the 'greater flexibility in the long-term' that would be afforded by going private again. However, the proposal has yet to be approved, and will be reviewed in the near future by independent directors, who will then make a recommendation to the CSFB board.

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