Credit Suisse First Boston Inc. Wednesday said it will buy up all 18.4
million shares of the CSFBdirect tracking stock in general circulation among
the public for a total of about $110 million.
stock is the series of common stock issued
by CSFB subsidiary Credit Suisse First Boston (USA) Inc. (formerly
Donaldson, Lufkin & Jenrette Inc.) that tracks the performance of its online
brokerage unit. CSFB said buying out the shares will give it additional
flexibility in the operation of the CSFBdirect business. The company said
the move would make it easier to allocate assets and liabilities among its
various businesses and reduce administrative and related expenses.
But the move also comes on the heels of a dramatic downturn in the market for full-service and discount online brokerage firms.
According to a report released Wednesday by Deloitte & Touche LLP’s Financial Services Industry practice, average activity in online accounts has declined 42 percent since the market volatility that began in spring 2000.
The report said online brokers’ primary concern is now a change in investor psychology, as opposed to the fears of system outages and a limited talented pool that were prevalent a year ago. That in turn has forced brokerages to change their business models to become more service oriented.
“Competing on price isn’t enough anymore,” said George Simeone, a partner in Deloitte & Touche’s Finacial Services Industry practice. “The bear market has caused online securities firms to change their focus from generating volume to capturing longer-term investors with high-value accounts.”
Deloitte & Touche’s survey, based on responses from 40 senior managers at leading full-service and discount online securities firms, found:
- An increased demand for customer service which has forced discount firms to compete based on quality customer service and breadth of products rather than just cost; 46 percent of the discount firms surveyed cited high-quality customer service as central to their positioning while 31 percent said low-cost services were important;
- Investors are seeking more advice and professional support to manage fluctuating market conditions; the report found that 83 percent of full-service firms offer this capability as opposed to 31 percent of discount firms;
- Innovative technology is a key differentiator which has become especially important to discount firms; 77 percent of discount firms offer real-time streaming quotes while none of the full-service firms interviewed do; ECNs are available from 79 percent of discount firms as opposed to 33 percent of full-service firms.
The survey also showed that online brokerages are becoming increasingly concerned with changing Securities and Exchange Commission requirements, especially those affecting customer protection, and that operational challenges will claim almost half of brokerages’ IT budgets. Also firms seeking to expand internationally are grappling with a host of new tax considerations.
CSFB said it will acquire the shares at $6 a share, a premium of 28 percent
over its closing price on Tuesday.
The transaction will be in the form of a cash tender commencing within 10
days, CSFB said. The company expects the transaction to close in the third
CSFB acquired DLJ last fall.