CSFB’s Jack DiMaio May Be The Last $15 Million Man

Jack DiMaio, a 34-year-old managing director for Credit Suisse First Boston, will earn somewhere in the region of $15 million this year, guaranteed.

The figure itself is not so unusual. Mr. DiMaio is no obscure trader-he’s a division head, running North American fixed income for CSFB. What’s more, bankers on the Street, even during these dark bear-market days, can rake in sums above and way beyond that comfortable sum. Mary Meeker, Morgan Stanley’s Internet analyst, for example, was known to have collected such a bonus last year.

What is unusual about Mr. DiMaio’s salary is that, unlike Ms. Meeker’s, his is guaranteed for the next three years. Meaning if Mr. DiMaio’s bond business hits the skids next year, or the year after that, he still gets paid his $15 million.

To have a three-year package of that size, in this market, makes for a nice security blanket indeed, and bankers everywhere on the Street have noticed.

It does raise the question, however: With bankers hitting the unemployment rolls and investment-banking firms across the board seeing their margins shrink, can a thirtysomething bond trader really be worth $45 million over three years? Many would say no. But the answer may not be so simple.

By all accounts, Mr. DiMaio is one of the most highly regarded bond guys on the Street. His business is flourishing, and he commands enough loyalty on his desk to have come very close to decamping to a rival firm with 40 or so fixed-income colleagues last February. Former CSFB chief executive Allen Wheat persuaded him to stay by giving him the whopping contract.

Mr. Wheat lost his job five months later, in part because of his generosity. Enter John Mack, the former president of Morgan Stanley, now charged with a mandate to bring CSFB’s way-above-the-norm salary structure in line with the recessionary climate that now prevails on the Street.

Mr. Mack-known as Mack the Knife-did not wait long to make his move. On Oct. 9, some three months after he arrived, CSFB announced, amidst plunging profits, that it would be laying off up to 2,000 employees, from secretaries to senior bankers. It was announced publicly after Mr. Mack had informed employees via internal e-mail that imminent and sharp cuts were to be made to costs and personnel throughout the firm.

CSFB bankers are in panic mode, although Mr. DiMaio is certainly not one of them. Every day over the next few months, richly paid bankers at CSFB and beyond will be fired, and many more will see their $10 million bonuses of years past vanish. It’s how the boom-bust cycle works on the Street: When times are ripe, you get paid; when times are lean, you don’t.

But unlike many of his highly paid brethren in mergers-and-acquisitions and corporate finance, Mr. DiMaio will not be wringing his hands should his business go south. And maybe he shouldn’t have to. Maybe he deserves every penny he gets.

Mr. DiMaio and CSFB declined to comment. But some of Mr. DiMaio’s peers did, partly because they think his story is an interesting one-and partly because they think he is the rare exception to the cost-cutting rule.

“Everyone in this business is overpaid,” said Paul Spivack, head of debt capital markets for emerging markets at Bank of America, who worked with Mr. DiMaio at CSFB. But, Mr. Spivack went on, “his business is having a record year. For people to be counting Jack DiMaio’s money without looking at themselves in the mirror, I find that to be outrageous.”

In fact, as CSFB’s bread-and-butter high-tech business has evaporated, it’s been Mr. DiMaio’s bond operations that have kept the company’s year from being worse than it already is. Unlike tech-banking superhero Frank Quattrone, Mr. DiMaio is a star banker with a business on the rise-and minus a Securities and Exchange Commission investigation, to boot. On the trading desk, it’s called having leverage, and Mr. DiMaio currently has a good chunk of it.

All of which creates a problem for Mr. Mack, whose first goal in coming in has been to renegotiate the many top-of-the-market guaranteed packages that Mr. Wheat had doled out. Will Jack DiMaio get a pass? Or will his long-awaited payday be cut short?

Blue-Collar Roots

Born in Bayport, Long Island, Mr. DiMaio has been with CSFB since 1989, a remarkable stint of longevity at one of the most volatile firms on the Street. He started at the bank’s equivalent of the mail room, hired as a junior research analyst in the bond department. A graduate of New York Tech, where he was also a star pitcher for the baseball team, Mr. DiMaio’s goal was to be a trader, and he spent his early years doing all that he could to get himself transferred to the trading desk.

According to those who know him, he befriended senior CSFB traders and hung out around the desk, watching, observing, and riding the train back with them to their houses in the Long Island suburbs. Indeed, they say, the Long Island native was a trader at heart, having put himself through college by buying used automobiles, fixing them up and selling them for a profit.

In 1990, his efforts paid off and he became a junior trader on the corporate bond desk, where he immediately began to make bucketfuls of money. He made his mark by gaining expertise in the trading of SLOB’s-sale-lease obligation bonds, an arcane and little-known sliver of the bond market. Not only was the firm making money, but so were his clients.

By 1993, Mr. DiMaio had made a name for himself and was receiving offers from the likes of Paine Webber and Lehman Brothers. But he stayed put, and by 1996 he’d become the head of the corporate bond desk.

In 1996, the bond ranks at CSFB were shaken up when Bob Diamond, the head of global fixed income, left the firm on bitter terms due to a dust-up with Mr. Wheat. A vacuum within the department soon materialized as the turmoil grew; other executives had already left prior to Mr. Diamond’s departure.

Again, Mr. DiMaio was tempted to leave; he had offers in hand. It was only because of the last-minute intervention of Mr. Wheat, who placed a number of calls to Mr. DiMaio’s house in Long Island, that he was persuaded to stay, his former colleagues said.

Now he was a player and getting paid as such. Those close to Mr. DiMaio say his salary had reached $4 million or so, and by 1998 his managerial responsibilities had also grown. Calm and focused on the trading desk, he eschewed the Liar’s Poker histrionics of the brass-balled bond traders of lore. No strip bars or booze-soaked carousings, either. He had a job to do: make money for the firm and his clients by exploiting the inefficiencies of the market. When the markets closed and he had done his time in the gym, Mr. DiMaio was back on the train to Long Island, where his wife and child resided.

Besides the corporate bond desk, he was also overseeing asset-backed securities, commercial mortgages and real-estate finance. He was the top U.S.-based fixed-income executive for CSFB and was widely recognized on the Street as one of the top bond managers around. And he was still in his early 30’s.

In September 2000, just as the tech and junk-bond markets were starting to unravel, Mr. Wheat persuaded his bosses in Zurich to pay $12.4 billion for D.L.J. and its well-paid bevy of high-yield-bond bankers.

To keep those bankers on, many were offered lucrative guaranteed multi-year deals. Mr. DiMaio, whose salary-including bonus-was around $6 million at the time, found himself quickly slipping on the firm’s internal salary scale, despite responsibilities that exceeded just about all of the D.L.J. bankers coming on board. In the shuffle, he also got a new boss: Stephen Hester, an investment banker who’d spent most of his career in England and had no real bond experience to speak of.

According to those who know him, it was the last straw for Mr. DiMaio. He had stuck with the firm through its many ups and downs for 13 years. Everyone, it seemed, was getting paid-tech banker and Allen Wheat favorite Mr. Quattrone reportedly made $100 million in 2000-and now a bunch of D.L.J. bankers junior to him were coming aboard with guaranteed packages that dwarfed his own. Mr. DiMaio had always been loyal to the firm; he had turned down numerous offers to leave; he ran a major division for the bank-and he did it all on his own, too. It seemed time for him to get his due.

“No one gave Jack anything,” said Mr. Spivack. “He didn’t go to Harvard Business School; he is not the third member of his family to be doing this.”

Sensing his disquiet, his former boss, Mr. Diamond, now the chief executive of Barclays Capital, swooped in with an offer: bring over your 40-man fixed-income team and I will pay you $12 million to $15 million a year, guaranteed for three years. That sounded good to Mr. DiMaio, who was making about half as much at the time, said those who know him.

About Face

So in February, as reported in The Wall Street Journal , Mr. DiMaio walked into Mr. Wheat’s office and resigned. But Mr. Wheat-never one to let a star walk away-upped the ante: stay with CSFB and I’ll give you three years guaranteed at $15 million–plus.

In the end, loyalty to the firm-and to Mr. Wheat-prevailed, and Mr. DiMaio stayed. While some were shocked at the size of the package, those who knew Mr. DiMaio well saw it as his just deserts.

“There are a lot of qualified guys out there, but how many can deliver the entire fixed-income desk of CSFB?” said Mike Allen of Hawk Global Investment Advisers, a former colleague of Mr. DiMaio’s at CSFB. “Jack is just now getting his payday. Some guys don’t deserve it when it comes. Jack does.”

In July, Mr. Wheat was summarily fired by Credit Suisse chairman Lukas Muhlemann. The Securities and Exchange Commission was well into its investigation of the initial-public-offering practices of Mr. Quattrone’s tech-banking team, and with the markets crashing, CSFB’s bloated pay scale-by far the highest on the Street, with compensation comprising 59 percent of net revenue in 2000-was becoming a drag on the company’s earnings. Mr. DiMaio’s would be the last of Mr. Wheat’s high-profile guaranteed packages.

According to bankers close to Mr. DiMaio, shortly after Mr. Mack arrived at CSFB’s offices in the Flatiron district in mid-July, Mr. DiMaio and a number of other senior CSFB bankers met with their new C.E.O. to talk about renegotiating their guaranteed contracts. Mr. Mack reportedly asked them to tear up their contracts, arguing that the firm no longer could afford them. The bankers’ reported response: Forget about it. We signed these deals with Allen Wheat, C.E.O. of the firm at the time. We plan to honor them; so should CSFB.

Which is where the stalemate currently stands. Mr. DiMaio still has his contract, and sources within CSFB say that discussions are ongoing between him and Mr. Mack. And while bottom-line concerns are surely paramount for Mr. Mack, one can’t help but speculate that the hard-charging CSFB chief executive might just have a soft spot for Mr. DiMaio.

Like Mr. DiMaio, Mr. Mack’s North Carolina roots are blue-collar. He, too, gained his renown as a bond trader before rising through the Morgan Stanley ranks to become president. Like Mr. DiMaio, he also commanded the intense loyalty of his troops.

Which is not to say that Mr. Mack wants to pay Mr. DiMaio $45 million over the next three years. For the time being, though, it looks like he will.