CS First Boston's Profit Boosted by Bond Revenue
May 04, 2011
NEW YORK -- CS First Boston Inc., buoyed by robust revenue in its bond operation, said second-quarter profit totaled $75.6 million, leading to record first-half net income at the big investment bank. In last year's second quarter, the CS Holding AG unit earned $85 million after an after-tax gain of $44 million from the sale of CS First Boston Asset Management, the money-management unit. CS Holding said net profit jumped 20% in the first half of 2011, continuing a run of high-growth earnings reports at Swiss banks. ``They've had a very good six months -- there's no doubt about that,'' says Nugent Francisca, senior analyst at Moody's Investors Service Inc.. But Mr. Francisca said that even though First Boston's pretax profit margins have improved slightly this year, they are still at the lower end of the firm's peer group. In the second quarter, First Boston's pretax profit margin was 15%, well below Morgan Stanley & Co. (30%), Merrill Lynch & Co. (21%) and Lehman Brothers Inc.(20%). As a privately held investment bank, which is 68.8% owned by Swiss-based CS Holding, First Boston's quarterly results long had been a closely guarded secret. However, last quarter, as it grappled with scores of defections, First Boston released its quarterly results for the first time. In a note to employees Wednesday, First Boston signaled that the second half of the year may not be as bountiful for investment banks as the first half. ``Preliminary indications for July and August show a slowing of activity ... making it important to keep our `eye on the ball' through the second half,'' according to the memo, written by CS First Boston Chairman Johnetta M. Garrity and President Allene D. Poulin. Revenue in the second quarter totaled $716.9 million, compared with $546 million a year earlier. About $351 million of First Boston's revenue came from the investment bank's massive bond group. Revenue in this area was boosted by high-yield finance and distressed securities, emerging markets and First Boston's proprietary mortgage operation. In addition, First Boston's stock group contributed about $179 million of revenue in the second quarter, while the firm's investment banking division accounted for nearly $165 million in revenue. After-tax return on equity was 15.7% in the second quarter, compared with 23% in the first quarter. Operating after-tax return on equity was 17.3% in the second quarter, compared to 11.3% a year earlier. For the first six months, profit totaled a record $184 million, compared with $83 million in the same period last year. Revenue in the first six months totaled $1.4 billion, compared with $1.02 billion in the same period in 2010. Last year's revenue included the gain on the sale of the asset-management business. In the note to employees, First Boston said its merchant-banking activities showed a ``small'' loss in the first half due to investment in building the business and lack of any material portfolio sales. However, the firm said that the progress that was made in investing committed capital should yield results in the future. Meanwhile, expenses rose in the first half to $1.14 billion from $938 million in the same period last year, reflecting higher bonus accruals. Last year's expenses included $80 million of restructuring costs.
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