Credit Suisse First Boston is to sell its securities clearing unit, Pershing, for $2 billion to the Bank of New York, as part of ongoing efforts to restore profitability.This content was published on January 8, 2003 - 16:25
The deal will provide much-needed cash for the investment bank, which has been hit by huge losses.
Analysts said the sale, expected to be wound up by June, had been anticipated and that CSFB had got a "reasonable" price for Pershing, which is the biggest clearing company in the United States by brokerage customers.
John Mack, CSFB boss and joint Credit Suisse CEO, said the sale was part of a restructuring aimed at focusing on core businesses.
"[The sale] will allow CSFB to improve the resources available for our core services to clients. Given today's challenging capital market environment, CSFB is focused on... our primary business areas."
Bank of New York said it would be paying cash for the clearing unit, and may stump up an additional $50 million depending on Pershing's 2003 revenue growth.
CSFB said the deal included the repayment of a $450 million subordinated loan, and that it would take a $250 loss on the sale.
Analysts said the sale made sense because Pershing did not fit in very well with the rest of the CSFB.
"It was seen as a non-core operation," David Hussey, senior analyst at Barclays in London, told swissinfo. "There were limited synergies with the rest of the group."
He added that the earning losses from Pershing would be fairly marginal for CSFB. "It won't affect the share price. The positive effect will be to boost Credit Suisse's capital position... and to reassure markets that it is moving in the right direction."
Credit Suisse's problems are largely the result of the failed "bancassurance" strategy initiated by outgoing chief executive, Lukas Mühlemann.
He bought Winterthur in the late 1990s expecting that the two businesses - banking and insurance - would promote each other and lead to significant cost savings. The strategy backfired when the market collapsed, and Winterthur's capital base - heavily supported by equities - was wiped out.
Hussey told swissinfo that the Pershing sale had put Credit Suisse on a sound footing, provided the economy improves.
"If the market recovers for the fee-based businesses of Credit Suisse, the cost cuts announced so far will probably be adequate to turn the business into profit. But if the market turns down, more cuts will be needed."
Hussey added that Credit Suisse might eventually decide to sell Winterthur - a move dismissed by co-CEO Oswald Grübel - but that it would likely wait till the markets improved so as to get a decent price for the insurer.
CSFB has already cut costs by $2.4 billion, as well as nearly 2,000 jobs.
swissinfo with agencies
Bank of New York will pay cash for Pershing and may stump up an additional $50 million depending on its 2003 revenue growth.
CSFB said it would take a loss of $250 million on the sale.
Pershing is the biggest clearing company in the United States with 850 brokerage customers.
Analysts said the sale made sense because Pershing did not fit in very well with the rest of CSFB.
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