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
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
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
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 Observer
characterized 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
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
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
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
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
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
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
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 The
Observer 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
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
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 Live commercial 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.