The New York Observer, December 11, 2000

By James Verini

Around 6 p.m. on Oct. 3, what was left of the equities division of Donaldson, Lufkin & Jenrette Inc. began packing into the Supper Club for its last official fall party. In past years, the affair could be counted on to turn into a tipsy blast. Equities analysts and salespeople work hard, and they take their unwinding seriously. But the mood at this year’s party was more somber. Even as they drank their cocktails and nibbled on roast beef, or retreated to the cigar room or the dance floor, the D.L.J.-ers were continually reminded of one morbid fact: Their beloved firm would soon be extinct.

On Aug. 30, D.L.J. had agreed to be purchased by rival Credit Suisse First Boston, and the following month had brought dozens of resignations from all quarters of the firm, especially from equities. Some of the people in the Supper Club that night were already working for other firms, but had come back because of their strong attachment to D.L.J. Many had accepted offers or were about to, and others would soon be on the street.

“There was shock, there was sadness,” recalled analyst Alain Karaoglan, who had reluctantly turned down an offer from CFSB to take a job at Deutsche Bank. “There was resentment. We realized that D.L.J. wouldn’t be there anymore.”

There was one remarkable moment of levity at the Supper Club: a 10-minute video chronicle of the firm’s last weeks, projected onto a large screen on the dance floor. It was a nostalgic, outtakes-style exercise in gallows humor, and it captured the feeling in the room perfectly.

It opened with a cartoon figure bearing the D.L.J. logo dancing to Gloria Gaynor’s “I Will Survive”; suddenly an enormous disco-style mirrored ball labeled “Credit Suisse First Boston” fell into the frame, crushing the figure. Later on, after footage of D.L.J. analysts mingling wistfully in front of packing boxes, there was a Top 10 list: “The Top 10 Reasons It’s a Good Thing CSFB Bought Us.” The No. 1 reason: “Now Joe Roby can stop worrying and fund his retirement.” With that came a photograph of Mr. Roby, D.L.J.’s chief executive, with throbbing dollar signs in his eyes as the Steve Miller Band blared “Take the Money and Run.” The concluding shot was of a green-and-white D.L.J. flag at 277 Park being lowered and stuffed into a trash can.

Since the party, the video has been in great demand — 1,100 copies have been made — and it is pored over like a high-school yearbook by ex-D.L.J.-ers.

For many who have left and many who’ve stayed on at CSFB, the merger (which closed on Nov. 3) has been all about Joe Roby’s greed and D.L.J.’s trashing. And the turnover and animosity that have resulted seem to be at a higher level than usual when one of these big Wall Street matches goes down.

Not that a sale or merger of D.L.J. wasn’t inevitable: Revenues from D.L.J.’s penthouse department, high-yield bonds, had been decreasing since 1998; the firm had largely missed out on the tech boom, and D.L.J. Direct, its online brokerage, was foundering. And with everyone in the financial-services industry rushing into marriage, D.L.J. and Lehman Brothers Holdings Inc. were the most eligible bachelors left on the street.

But no one saw CSFB coming. “Everybody thought it would be either J.P. Morgan or Chase. I don’t think CSFB was on anybody’s list. It didn’t make any sense,” said an insider.

And three months later, it might make even less sense. Insiders who spoke to The Observercharacterized it as a questionable fit at best, a “sellout” and “disaster” at worst. Many think that most of what was great about D.L.J. — its famously collegial meritocracy as well as its most profitable businesses and best minds — have been lost or chewed up in the deal. Vast swaths of redundancy between the two firms have led to exoduses of entire departments in New York, London and Los Angeles.

By the day of the Supper Club party, “the doors were open but the trading floor was basically empty,” recalled a former managing director, speaking of the funereal atmosphere in the 277 Park Avenue offices. “People who knew they had a job at CSFB had already started taking vacations. Clients weren’t calling us anymore because there wasn’t any reason to do business with D.L.J. It was a startling end to what had been an incredibly vibrant environment.”

The marriage appears no more successful on CSFB’s end. By acquiring D.L.J., CSFB had hoped to bridge the gulf of revenue and reverence that routinely separates it from the bulge bracket of Goldman, Sachs Group Inc., Morgan Stanley Dean Witter & Company, Merrill Lynch & Company, Inc. and J.P. Morgan & Company Inc. But now it looks like Credit Suisse may have paid $13.5 billion for not much more than a disintegrating junk-bond business.

Yet one person apparently walked away happy: Joe Roby.

When he stepped onto the trading floor on Sept. 1 trying to elicit some good will, Mr. Roby was heckled by the traders. And amid the laughter over the video at the Supper Club party were hisses and boos from the crowd. Unsurprisingly Mr. Roby was not there to hear.

Former chief executive and then-chairman John Chalsty was there, however. The crowd hooted and howled when, in the middle of a discourse that attempted to sugarcoat the deal, Mr. Chalsty took a breath and conceded: “For many of you, personally, it sucks.”

One Big Family

Maybe it hurts so bad because the D.L.J. crowd had it so good. Donaldson, Lufkin & Jenrette was known on the Street as a uniquely pleasant place to work. Founded in 1959 by three Harvard Business School graduates, it grew slowly over the years and never developed the calcified culture of its rivals. It managed to compete with other Tier 2 banks — CSFB, the Bear Stearns Companies, Lehman Brothers Inc. — while remaining considerably smaller than them; at the time of the merger, D.L.J. had roughly 11,000 employees worldwide.

People who came to the firm tended to stay. Mr. Roby, for instance, worked his way up to chief executive over 28 years. Bankers were encouraged to build new businesses. It was the first bank to have employees invest directly in its venture- capital and merchant-banking funds. Sources used the word “family” to describe D.L.J.

“The political atmosphere was direct compared to most firms,” recalls one former D.L.J. banker. “You had direct access to management. John Chalsty wandered the floors constantly and talked to people. His motto was ‘No. 1 To Have Fun.’ You weren’t allowed to get an attitude.”

“It was the best place to work on the Street,” said an insider who has worked for several investment banks.

In 1985, D.L.J. was bought by the Equitable Companies, itself majority-owned by AXA Financial Inc., the French financial-services conglomerate. At the time of the CSFB merger, AXA had a roughly 70 percent controlling interest in D.L.J., and Guy Moszkowski, a banking analyst at Salomon Smith Barney Holdings Inc., thinks the decision to sell to CSFB came from Paris, not New York. “Ultimately, AXA did not view [D.L.J.] as a core business,” Mr. Moszkowski said. “Between the cost of [D.L.J.’s expansion in] Europe and the fact that the junk business was weak, the company’s return on equity was not where it’d been. AXA had a very rich offer [from CSFB] for cash, at a time when they were trying to refocus their business and had a need for the cash … D.L.J. was a very fine business, but AXA was not committed for the long haul.”

D.L.J. first made a name for itself in equity research, and from that its investment bank grew. When Drexel Burnham Lambert Inc., the old home of Michael Milken, fell apart in 1990, many of its junk-bond specialists went to D.L.J. It was not long before D.L.J. had inherited Drexel’s mantle as “The House That Junk Built.” While the comparison between the firms is unfair, D.L.J. never quite shed the ignoble connotations a thriving junk-bond department brings with it — if for no other reason than that it had the best one on the Street. It constituted most of D.L.J.’s allure, and it’s why CSFB was willing to pay $90 a share cash for the firm.

As though the junk-bond market’s woes were not enough, D.L.J.’s junk-bond heroes are steadily handing in their walking papers. Eric Swanson and Mike Johnson, two instrumental managing directors in the New York office, left for Goldman Sachs (D.L.J.’s only real competitor in junk bonds) and Nomura Securities International Inc., respectively, just before the merger broke in August. Kevin King, a builder of D.L.J.’s European junk business, had shortly before gone to Deutsche Bank A.G.

Since the merger: Garrett Moran, one of the architects of the department and a fixture of the New York office, suddenly took a “leave of absence” in mid-November. And perhaps most devastating for CSFB, Ken Moelis — a disciple of Mr. Milken’s at Drexel and the acknowledged prince of West Coast high-yield — accepted an offer from UBS Warburg at the end of November.

The high-level departures extend across D.L.J.’s businesses and well into its investment bank. Since October, Martin Smith, chairman of European investment banking, has left. So have Hal Ritch, co-head of mergers and acquisitions; Louis Friedman, head of media and communications M. & A.; Stuart Robbins, head of equities sales; David Diwik, head of European investment banking; Sam Evans, head of institutional equities sales; Nathan Wiesenfeld, head of new bond-issue marketing; John Patterson and John Kiernan, managing directors of health-care investment banking; and Antony Lundy, managing director of energy investment banking.

“When you spend $14 billion, the presumption is that the senior guys with the contacts and the rainmaking capabilities are the guys you want to keep most,” said a former managing director. “These guys are the most senior guys, and they’re leaving.”

Things keep getting worse for CSFB. In late October, Mark Maron, its own head of West Coast investment banking, left for Lehman Brothers. And tragically, Gordon Rich, CSFB’s co-head of media investment banking and a famous Wall Street personality (he appears in Barbarians at the Gate), died in a car crash on the New York State Thruway on Nov. 19. The stock of D.L.J. Direct has slipped to $3.75. Its management has publicly voiced concerns that CSFB will not keep it afloat much longer.

Why are so many bankers, for whom CSFB probably overpaid, leaving? Overlap is a fact of any bank merger. Mr. Roby admitted, on Aug. 30, that roughly 2,100 D.L.J. jobs would be cut. In the equities department, overlap is most to blame.

And every bank merger includes clashes between powerful personalities. Ken Moelis, for instance, likely left because of Frank Quattrone, CSFB’s highly effective, infamous tech banker. While Mr. Moelis had tremendous clout, Mr. Quattrone had more (in 1999, Quattrone’s group accounted for 51 percent of CSFB’s $21.9 billion in global equity and equity-linked issuance and all but four of the 58 I.P.O.’s that the firm underwrote; he reportedly makes $8 million in salary as well as a flat percentage of the revenue he brings in — an extremely rare arrangement). With Mr. Quattrone around, the technology market would have been off-limits to Mr. Moelis. “Moelis got Quattroned,” said one insider.

Insiders also attest to a palpable animosity between the merged troops. Besides the Roby factor, myriad departures and vanishing D.L.J. congeniality, D.L.J.-ers are disheartened by the hasty and impersonal integration process.

CSFB’s people, on the other hand, must work with new colleagues who have received contracts (for upper management, they extend to as much as two years), enviable pay packages and, for managing directors and up, exceedingly generous bonuses. And to top it off, there’s their wounded sense of autonomy to be dealt with.

Among the upper ranks, there are perceptions of ambiguity — perhaps even deceit — in the motivations of CSFB chief executive Allen Wheat and his retinue. Insiders have noted disparities between Mr. Wheat’s stated intentions to do everything possible to keep D.L.J. intact and the general feeling among CSFB’s rank and file that everything other than the junk-bond business was disposable and should be treated as such in management and contract negotiations.


Now They’re Afraid

What’s developed now is a new D.L.J. culture, one of fear. Most of the people who spoke to TheObserver for this article refused to go on record, or even to be quoted anonymously, for fear that CSFB would retaliate against friends who have stayed on there. As proof, people cited the case of Garrett Moran.

On Nov. 13, after returning from a corporate conference in Orlando, Fla., Mr. Moran decided to take a “leave of absence.” At least that’s what the press release says; according to insiders, Mr. Moran, who’d been with D.L.J. for 18 years — he’d helped to build its junk-bond business and was most recently global head of private equity — was forced to leave. He was a universally beloved presence at 277 Park, a “great guy” and “great manager.” He was described by one source as “possibly too nice for this business.” But when Mr. Wheat attempted to have him transferred to the merchant- banking division as part of the general reshuffling, its chiefs — both the D.L.J. and CSFB parties — refused, effectively shutting him out.


Such stories abound at the new CSFB. And taking the heat for it all is Mr. Roby.

The consensus seems to be that Mr. Roby knew the firm might disintegrate, but was too entranced by the thought of an $80 million payday to care much. (The firm says that Mr. Roby, who is now chairman, is getting $82.4 million over six years, but everyone thinks it’s much higher.)

“People were upset that Credit Suisse bought us,” said one insider, “but they were more upset with what Joe Roby got.”

Mr. Roby’s decision to sell stings all the more because he was himself a consummate company man, as revered a figure — until the merger, at least — as John Chalsty. From his photographs, it is hard to believe that his detractors are speaking of the same man. Mr. Roby is tall and pudgy, with patient, benevolent eyes peering out from the kind of oversize glasses you might find on a high-school algebra teacher. His white hair suggests his age — 60 — but his friendly face has something undeniably childlike about it. He did not return calls from The Observer.

Mr. Roby joined D.L.J. in 1972 and rose steadily, but not meteorically. He became chief of the investment bank in 1984, chairman in 1989, chief operating officer of the entire bank in 1995 and president the following year. In 1998, he succeeded Mr. Chalsty as chief executive. His ascent coincided with the increasing importance of investment banking to D.L.J. Indeed, he was the first chief executive to have come from the investment-banking side.

Allen Wheat, 51, is neither an old company man nor a universally beloved figure. He is respected for his intelligence — his expertise is in derivatives, some of the most complicated and mathematically puzzling financial products around — and for his forthright style. “I will get tossed out on my ear if nothing gets implemented this time,” Mr. Wheat told a reporter in 1993, when he was named chief operating officer and president. He joined the firm in 1990, after serving as chairman of Banker’s Trust, and was put in charge of the then-weakening CSFB’s day-to-day operations because of his ability to clean house. He oversaw the D.L.J. merger, and now all eyes are on him as the junk-bond market lies fallow and top bankers leave. He also declined to be interviewed by The Observer.

Across the hall, Mr. Roby is sitting pretty as a CSFB chairman with few responsibilities and, apparently, no divisions reporting directly to him.

“Joe Roby doesn’t matter anymore,” a CSFB spokesman said bluntly, in trying to prove Mr. Roby’s irrelevance to the eventual success of the merger.

Meanwhile, D.L.J.-ers and CSFB folk try to get along. On the weekend of Nov. 10-12, the managing directors attended a corporate retreat in Orlando. The mood was surprisingly civil. Just as at the final D.L.J. equities party, videos were shown. One, made by CSFB, borrowed from an old Saturday Night Livecommercial to mock the bank’s new ad tagline, “Empowering Change.” Enthusiastic clients laud the bank’s ability to make change: “I use CSFB for all my change. I give them a dollar and they give me four quarters.” D.L.J.-ers were happy to find that CSFB may have a sense of humor about itself, too.

On Saturday, everybody played paintball. Monty-Python-alum-turned-motivational-speaker John Cleese gave a talk. And commiseration emerged in at least one place: While the bankers stayed in the Loews Portofino, the equities division was put up in a more budget-conscious hotel. It had coarse soap and small towels, and they all thought it unjust.

And back at 11 Madison Avenue, where much of D.L.J. has moved in, Mr. Wheat is holding regular candle-lit dinners for upper management to encourage integration. However, he was not present at the Nov. 29 dinner. Mr. Wheat was in Switzerland.