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Stepping into the breach at CSFB: Brady Dougan, Credit Suisse First Boston's newly installed chief executive, takes over from John Mack.

Brady Dougan has done almost everything for Credit Suisse First Boston. In his 15 years with the investment bank, the new chief executive has run the equities arm, the debt business, the investment banking division and dressed up as one of the blonde singers from Abba.


It is unclear whether Dougan's impersonation of the Swedish songstress at last year's annual charity event won him plaudits with the directors of Credit Suisse, CSFB's parent. But when the Swiss power-brokers elashed with John Mack, the former Morgan Stanley high-flyer hired to resurrect CSFB's fortunes, they took a chance on this low-key 44-year-old.

That was in June, when Mack left after three years because the Credit Suisse board would not back his plan to merge with a rival such as Bank of America or Barclays. Since then, Dougan, the youngest chief executive of a Wall Street investment bank, has worked to steel CSFB for what is regarded as a make-or-merge plan: doubling the 2003 profit of $870 million by 2006.

Mack, a larger-than-life figure who inspired both awe and loathing at CSFB, returned the firm to the black by cutting thousands of jobs and reining in the lavish pay packages of its star bankers. But during his tenure, CSFB lost market share to rivals, a slide that Dougan and his "Plan '06" must reverse without sacrificing profits. "Brady has to save CSFB from becoming a second-tier investment bank, a medium-sized player in a world dominated by the big boys," says an executive at one of CSFB's rivals.

So far, this keen runner from Illinois has made few public pronouncements, preferring to focus on stemming an exodus of senior bankers in the wake of Mack's departure and streamlining the firm's internal structure. But Dougan, giving his first interview as chief executive, outlines his strategy. In Shanghai, where he attended Credit Suisse's first board meeting in China, Dougan laid rest to his predecessor's plans. "The message is clear and it hasn't changed. (Credit Suisse) is not going to merge with another firm and CSFB is a core part of the group," he says, speaking at the YongFoo Elite, a dining club in a colonial mansion that once housed British diplomats.

Diplomacy is a skill Dougan will bring to the job. Mack did not build a solid power base, alienating top executives including Dougan, who was sidelined to a post in Europe. Mack also failed to cultivate relations with the upper echelons in Zurich, led by Oswald Gruebel, with whom he shared the chief executive role at Credit Suisse. By contrast, Dougan's soft spoken, laid-back style belies acute political antennae. CSFB insiders say he used his European exile to cement his relationship with Gruebel.

With Gruebel now installed as Credit Suisse's sole chief executive, Dougan has a strong mandate for reform. And yet many at CSFB forecast that the changes will be of style rather than substance. According to Dougan's critics, the choice of an insider shows Credit Suisse's resistance to change at its investment bank. "Brady is not going to rock the boat," says a person close to CSFB. "If they wanted dramatic change, they would have kept Mack or chosen another outsider." Even his supporters acknowledge that the main difference with the past will be the replacement of bombastic pronouncements and aggressive attacks on perks and fiefdoms with a softer, more technocratic approach.

Dougan declined to comment on Mack. However, he endorsed a central policy of his predecessor, dubbed "Mack the Knife" for his ruthless approach to bloated payrolls and excessive salaries. He ruled out a return to the freewheeling big-pay culture that inflated CSFB's costs. "Our industry has a traditional difficulty in disciplining itself," he says. "I don't think we need to pay ridiculous amounts of money."

But a tight rein on costs, without rises in profits and market share, may not be enough to challenge Goldman Sachs and Morgan Stanley. CSFB's profits nearly halved in the second quarter compared with the first.

Dougan believes that for "Plan '06" to be successful, Asia will have to play an ever-greater role in CSFB's business. "Asia is our biggest opportunity," says Dougan, who worked in Tokyo for 10 years in the 1990s. "We believe the highest growth in the world is going to come from this region. We expect Asia to become a growing part of our revenues and profits in the next few years."

But Asia is also one of the world's most difficult investment banking markets, where fees for many products have become razor-thin due to the fierce competition among international firms.

In the first nine months of the year, CSFB's equities advisory business in Asia, excluding Japan, had estimated revenues of only $41 million, according to the research firm Dealogic. And this in a period when the bank was second only to Morgan Stanley in the volume of Asian initial public offerings it advised on.

The low fees are part of the reason Dougan wants to decrease the firm's reliance on traditional advisory work and devote more capital to businesses such as private equity, securitization and high-yield debt. "In the U.S. and Europe, there may be some businesses where we want to scale back," he says. "In Asia, we will increase our investment."

At the top of the list geographically is China. Dougan dismissed fears that the departures of Mack, a China bull who made frequent visits to the country, and CSFB's head of China Wei Christianson, a Mack loyalist, would damage CSFB's standing. "We don't think we are going to miss a beat in this business," he argues, pointing to the appointment of the former Merrill Lynch banker Zhang Liping as Christianson's successor.

The only time in the interview when the otherwise unflappable Dougan becomes animated is when it is suggested that the loss of Mack's Rolodex of Chinese contacts would be a blow. "I believe we have a very strong franchise in China," he says. "I lived out here (in Asia) for 10 years and I've been visiting for the past 20 years. I have extensive relationships here."

But even if the China strategy remains on track, and even if the business in Japan picks up in line with the country's recovery, CSFB needs to plug a gap in India. The firm lost its presence in India's securities markets in 2002, when it was banned for its alleged part in a pricefixing scandal. Dougan believes the time is ripe to re-enter India, a market with huge potential but thin margins for investment banks. One problem: CSFB has just received another three-month suspension as part of a related regulatory probe.

With or without India, Dougan knows that whether he turns out to be the last chief executive of an independent CSFB or the man who restores its luster will depend on three things: money, money, money.

This story was reprinted with permission from the Financial Times.

RELATED ARTICLE: Trick of The Trader

* Born: 1959

* Education: University of Chicago, BA, MBA

* 1990: Joins CSFB

* 2004: Named CEO

* Management trick: Owning up to his mistakes. Wall Street chiefs hate losing, and rarely admit to it when they do. Challenged to run a 5-minute mile, he trained hard, but he clocked 5:04. Dougan did not lose a fortune, however; the bet was structured like a derivative, so that he paid progressively less the closer he got to 5 minutes.
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Title Annotation:FINANCE
Author:Guerrera, Francesco
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Nov 1, 2004
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