Credit Suisse First Boston executives said on Monday that they plan to remove the online brokerage unit CSFBdirect from the spotlight of public scrutiny by buying back the 18% of the company's shares that it does not already own.
Speaking in an interview on Monday, Blake Darcy, the chief executive of Jersey City-based CSFBdirect, said that the decision to buy back the publicly held shares had nothing to do with the company's falling stock price, which has come under pressure as investors stay offline amid the continued market downturn.
"This is a strategic decision," Mr. Darcy said. "It makes us more flexible in moving assets and liabilities." By bringing the unit into the worldwide operations of the Swiss-based parent company, Credit Suisse Group, CSFB hopes to save on administrative expenses, Mr. Darcy said.
A statement from the firm said that running the brokerage as an independent subsidiary under the close attention of outside shareholders has proved costly.
The proposal to buy the tracking stock, which would pay outside shareholders $4 a share, is subject to approval by CSFB's board of directors and to a definite acquisition agreement. On Monday the stock closed at $4.22.
Mr. Blake said there will be no immediate change in CSFBdirect's overall strategy when the parent company completes the purchase.
CSFB's announcement came less than two years after Donaldson, Lufkin & Jenrette, which was acquired by CSFB last year, sought to capitalize on the hoopla over Internet stock trading by taking CSFBdirect's predecessor, DLJdirect, public.
Other companies that had online brokerage units also considered initial public offerings at about the same time, and Toronto-Dominion Bank did an IPO for its New York brokerage unit, TD Waterhouse Group.
But the bull market for the technology-heavy Nasdaq - which fueled much of the retail interest in equities - has ended, and business for online brokers has started to slow. Americans who made a national pastime of trading equities on the Internet are now staying away from their computers and instead are seeking advice as the market continues to tumble.
Their absence has been felt. Last week CSFBdirect closed a call center in New Jersey and cut jobs from three other locations that had handled calls from investors, for a total of 150 job losses.
Also last week, Charles Schwab Corp., the nation's biggest discount broker, said it would lay off 13% of its work force, or 3,400, because of a drop in the number of investors trading online.
San Francisco-based Schwab said it would repurchase up to 20 million shares of the company's stock through the open market to help boost the stock price and earnings per share. It has 1.41 billion shares outstanding.
Meanwhile, Mr. Darcy said, CSFBdirect may see more layoffs if the market does not bounce back.
Running CSFBdirect as a public company was not working for CSFB, observers said.
Being a public company gave the old DLJdirect valuable visibility that at the time of the initial public offering helped promote the brand, said Robert Sobhani, an analyst at Banc of America Securities. Now that advantage has turned into a disadvantage, he said.
"Tracking stockholders are interested in earnings, and in fact CSFBdirect was losing money and probably will do so for another while," Mr. Sobhani said. Because the parent company will be paying the bill, it makes sense to reintegrate the unit into the worldwide operation.
The rebranding of DLJdirect into CSFBdirect only made the operation more expensive and made account acquisition harder.
But analysts said that CSFB's decision will probably have little effect on the online brokerage sector; consolidation will continue and peripheral players will disappear, they said.
Mr. Sobhani said Toronto-Dominion Bank probably will not replicate CSFB's move.
"Unlike CSFBdirect, they make profits," he said.