Credit Suisse First Boston's asset-backed securities team, viewed initially by rival bankers as mere replacements to the top-ranked team that bolted CSFB more than a year ago, is turning out to be top-tier material in its own right.
The 70-person team, co-headed by former Prudential Securities Inc. ABS veterans Joseph Donovan and Gregory Richter, had a tough task when they and roughly 20 other Pru veterans moved uptown to CSFB's 11 Madison Avenue headquarters in March 2000. CSFB was reeling from the sudden departure only days earlier of Jorge Calderon and Phil Weingord, who had led CSFB to the top of the ABS underwriting heap in 1999. Unhappy with recent management changes, however, the pair defected to Deutsche Bank, taking dozens of top ABS traders, researchers and sales staff with them.
While Donovan and Richter were well respected on the Street, many rivals believed that the wounds left by the nearly 50-person walkout could cripple CSFB's standing in the market. Another difficulty: CSFB's ascendancy in the sector was already under challenge by Salomon Smith Barney, which did wind up being the top underwriter of 2000.
Yet a year after the crisis, CSFB is in much better shape than many critics would have predicted. As of press time, the bank is ranked second in U.S. ABS underwriting, with $21.8 billion in deals underwritten and a 13.6% market share, up from third place and an 11.3% market share at year-end 2000, according to Thomson Financial. And the shop has brought more deals to market this year than any other competitor -142 as of press time, compared with the 62 underwritten so far by market leader Salomon.
CSFB's ABS pros said the success has been due in part to keeping the large stable of longtime CSFB clients contented, and to ensuring that the service would not change in any way due to the change in leadership. "One of the first things we did was to make sure that issuers and investors felt comfortable executing through CSFB," Richter said.
As for individual ABS sectors, CSFB is the top underwriter of collateralized debt obligations year-to-date, having brought almost $2 billion more in deals than runnerup Lehman Brothers, and is also the top student loan ABS underwriter, with a 27% market share. In all other ABS sectors, CSFB is a top five player. "We try to dominate each sector we play in," Donovan said.
Perhaps most interesting for those league table watchers looking for rivalries, is that CSFB's new team is beating out CSFB's old team now ensconced at Deutsche.
Only in credit-card ABS is Deutsche ahead of CSFB - in all other sectors, CSFB is comfortably in the lead. So far this year, CSFB has underwritten almost $7 billion more in domestic ABS than fifth-ranked Deutsche.
Tough sell
To be sure, CSFB's league table status could change as the year goes on. Deutsche, under Weingord and Calderon's helm, has made significant strides of its own, ascending from a lowly nineteenth before Weingord/Calderon all the way up to fifth today, while Salomon seems entrenched as the top ABS underwriter. J.P. Morgan Chase and Lehman are also in the thick of things.
One question is whether CSFB could suffer in the league tables by not having access to an in-house ABS origination vehicle, like Salomon and J.P. Morgan Chase's credit card businesses or Lehman's loan conduits. Some bankers believe that as the ABS market matures into more commoditized businesses, the houses with their own source of ready-made ABS product will have a natural advantage.
CSFB thinks not, and seems to be trying to use its rivals' in-house advantages against them. In a recent advertising campaign, CSFB bills itself as the "number one choice among issuers who have a choice", and ran an altered league table that excluded self-issued deals, in which CSFB emerged as the top underwriter for first-quarter 2001.
More importantly, Donovan and Richter have pushed CSFB to expand its ABS coverage in a number of areas, trying to win bigger deals in a variety of sectors, such as manufactured housing. While CSFB had been competitive in student loan-backed deals, for example, it had never won mandates for what is considered to be the top student loan ABS issuer. "CSFB had done student loan deals but had never led a Sallie Mae deal, for example," said Donovan.
The shop has also benefited from last year's merger between CSFB and Donaldson, Lufkin & Jenrette, as they inherited DLJ's strong CDO business, which has in part helped boost CSFB's overall performance in that sector. Furthermore, because DLJ's strength was primarily in mortgages, there was little overlap between the two groups and thus very few layoffs or political battles emerged from the two teams combining.
The relationship between Donovan and Richter is also fairly unique. Where other ABS co-heads will often segregate new issues from secondary trades, and divide up the ABS market by territory, the two CSFB officials try to have a more organic system, where Richter is in charge of all trades, whether it's primary or secondary, and Donovan handles all types of origination.
The goal is to have a seamless transition between bringing a new deal to market and selling it immediately in the secondary market. "There's no handoff between pricing and trading here," Donovan said.
