Insiders at Bankers Trust New York Corp. made no effort to conceal their disappointment earlier this year when Mark Patterson, a key executive, bolted for the investment banking firm CS First Boston Corp.
As head of U.S. debt finance, Mr. Patterson was credited with building Bankers Trust into a credible player in the junk bond market.
He faces a similarly daunting task at First Boston, which hired him in March to run a reconstituted leveraged finance group.
Among his top challenges is to transform First Boston and its commercial banking affiliate, Credit Suisse, into a top-tier provider of loans for leveraged buyouts, recapitalizations, and the like.
Mr. Patterson will also be responsible for the firm's activities in junk bonds and emerging markets. He is said to have received a two-year contract worth millions.
First Boston, of course, is not the only investment bank looking to barge in on commercial banks' leveraged lending business.
Efforts Have Intensified
Indeed, First Boston and a few other firms have been dabbling in the business for years, trading loans in the secondary market, and occasionally originating loans, too - sometimes with unfortunate results.
In recent months, those efforts have intensified considerably.
But on Wall Street, timing is everything, and commercial bankers say First Boston and the other investment houses are arriving late to a market oversaturated with available credit.
As a result, it won't be easy for the newcomers to make a big splash, at least in the near term.
'A Crowded Tank'
"They're jumping into a crowded tank," said one banker, "and there's not much water left."
Judging by the recent hiring binge, though, the investment banks appear intent on making their presence felt.
Merrill Lynch & Co. captured the loan market's attention in June when it raided Chemical Banking Corp.'s loan syndication and acquisition finance departments, hiring five professionals.
Its Presence Is Felt
Jack Yang, the most senior of that group, signed on at Merrill for a salary widely rumored at $750,000 to $850,000, or two to three times what he was making at Chemical.
The other four also are said to have at least doubled their paychecks in making the move.
Even if Merrill falls flat on its face in leveraged lending, the firm has already succeeded in making its presence felt in the hotly competitive business.
Officials at some of the leading commercial banks in the business - Bankers Trust, Citicorp, and Chemical among them - didn't want to talk on the record about the increasing competition from investment banks.
But sources said the staff raids have already forced a rejiggering of compensation levels to keep a lid on defections.
Pay Scale Has Been Lifted
"What basically has happened is the whole pay scale has just been lifted," at least for key personnel, one commercial banker said privately.
Merrill Lynch, a distribution powerhouse, is the perennial leader among underwriters of corporate bonds. But at least for now, it is First Boston that poses the most credible threat to commercial banks in the leveraged lending business, bankers generally agreed.
"I think they could become a significant player in the market, if they're willing to commit the necessary capital," said a specialist in buyout lending at one of the New York money-center banks.
First Boston's advantage comes from its affiliation with Credit Suisse, which gives the firm direct access to a huge balance sheet, as well as an existing infrastructure for administering bank loans, bankers said.
First Boston's foray into leveraged lending is being conducted as a joint venture with Credit Suisse.
But the close arrangement raises some ticklish issues. First among them is a cultural one.
A Different Animal
Credit Suisse is a leading participant in the U.S. corporate loan market, ranking among the top 10 syndicators.
But most of the bank's business is for investment-grade clients, rather than highly leveraged borrowers. Expertise in one area is not necessarily transferable to the other.
No Sudden Moves
Robert O'Brien, a respected veteran of buyout financing who was hired from Chemical in June to take charge of the leveraged lending effort, suggested that he would be careful to avoid rattling his Credit Suisse colleagues.
"We've got to manage the migration" to leveraged lending, Mr. O'Brien said.
In other words, First Boston will think twice before committing $1 billion right out of the box for a leveraged deal.
Peter Nardin, head of commercial banking at Credit Suisse in New York, said officials at Zurich-based CS Holdings - the parent of First Boston and Credit Suisse - are "committed to a rational approach" to the leveraged lending business.
"We're not going to do anything foolish," said Mr. Nardin.
Some Egos May Be Bruised
While CS First Boston will originate the leveraged lending assignments, the loans actually will be booked by Credit Suisse, and the bank also will be responsible for syndicating the credits.
In that sense, First Boston's role in generating the business will be invisible to the loan market.
That could bruise some egos down the road, if First Boston officials come to feel they are not getting the proper amount of public recognition for their labors.
Changing of the Guard
Also unclear is how First Boston and Credit Suisse will share fees on leveraged deals.
While the two affiliates are said to have worked out an arrangement, officials would not comment publicly on the matter.
If there was any question, though, about whether Credit Suisse is fully prepared to make the leap into leveraged lending, it was largely answered last week with a changing of the guard in Credit Suisse's loan syndication department.
Bruce Ling, who specialized in syndicating buyout and other leveraged loans at both Bankers Trust and Citicorp, was hired to run the Swiss bank's entire syndication operation in New York.
Mr. Ling was recruited by Richard Ivers, a former Citicorp banker, who started work at First Boston last Wednesday.
The word on the street is that Mr. Ling, like the former Chemical bankers who went to Merrill, was tempted in part by the high salaries Wall Street is willing to pay commercial bankers with expertise in leveraged lending.