In investment banking, you have to have scale to survive

Bryan Crossley, ABN Amro banking analyst

The deal values DLJ shares at $90 each, representing a premium of 22% on its closing price on Monday. French insurance giant Axa is to get 30% in cash and 70% in Credit Suisse shares for its 70% stake in DLJ.

DLJ chief executive Joe Roby is set to become chairman of CSFB while CSFB chief executive Allen Wheat will be president and chief executive.

Shares in DLJ closed $6.5 higher at $88.50 on Wednesday.

Powerhouse

"This powerful combination substantially strengthens Credit Suisse First Boston's competitive position as one of the world's leading investment banking firms," the Credit Suisse statement said.

The Swiss bank is planning a retention fund of $1.2bn to help keep DLJ staff.

Credit Suisse expects the merger to produce pre-tax annual cost savings of between $750m and $1bn by 2002.

The merger is expected to be completed by the end of the year.

Second Swiss move

The CSFB move is the second move into the US in two months by a Swiss bank.

In July CSFB's bitter rival, the Union Bank of Switzerland (UBS), bought US brokerage firm Paine Webber for $10.8bn from General Electric.

CSFB said the merger will improve its competitive position in investment banking.

It combines CSFB's talent for underwriting hot technology stock offerings with DLJ's burgeoning merger advisory business and its stock processing operation.

So far, the move has been welcomed by analysts.

"In investment banking, you have to have scale to survive," Bryan Crossley, banking analyst at ABN Amro said. " This is like a poker game, you have to keep throwing money into the pot to stay at the table."

DLJ also operates an internet share dealing service, DLJ direct, and is a market leader in sales of corporate bonds

CSFB is a global financial services firm with $275bn in assets and 15,000 employees in 37 countries. Its parent group, which includes Winterthur Insurance, is valued at more than $60bn.

Moves into US

US stockbrokers have become increasingly attractive as takeover targets as the number of US shareholders, already the largest in the world, continues to soar.

Many US stockbroking firms have made record profits in the past year.

The news sparked a rally in other US brokerage houses, with Lehman Brothers, Bear Stearns, and JP Morgan all rising to near 52-week highs.

JP Morgan had been considered one of the possible bidders for DLJ, as had money centre bank Chase.

CSFB has recently overtaken UBS in terms of market capitalisation, and is anxious to follow its rival into the lucrative US market.

Other big European banks like HSBC and Deutsche Bank have recently made major US acquisitions.