The Campaign for Sustained Leadership

Key Players in Investment Banking and Financial Services Weigh in on the Industry's Heftiest Mergers – and What Could Happen Next

Frank Quattrone is an intense guy in an intense business. If you ask him why investment banking is consolidating like crazy these days, the head of Credit Suisse First Boston's Technology Group will shift into overdrive.

The three high-margin areas where investment bankers make money - equity underwriting, high-yield bond underwriting, and mergers and acquisitions - are concentrating in the hands of fewer and fewer firms, says Quatrrone, W'77. And if you want to play ball with the world's top investment banks - Goldman Sachs Grooup, Morgan Stanley Dean Witter and Merrill Lynch - you must be big and broad, with an array of capabilities. A firm can develop and strengthen those capabilities either from within - or via acquisition.

"Clients want to deal with winners," Quattrone says. "It's hard for investment banks not ranked in the top five or even the top three to win the important business that drives market share. If you look at market share of the top five or three in equity, high-yield and M&A, they're becoming increasingly concentrated in those hands. If you can't compete, you have to do something. So, why bang your head against the wall?"

Why, indeed.

If you are Zurich-based Credit Suisse Group, parent of CSFB, you don't try to grow organically – you buy Donaldson Lufkin & Jenrette and merge it with CSFB. If you are UBS, another Swiss banking giant, you acquire PaineWebber Group. Or, if you happen to be Chase Manhattan Bank, you buy J.P. Morgan. These three deals, announced within months of one another in 2000, shook the increasingly intermingled world of investment banking, commercial banking and brokerages, and left Wall Street wondering who would be next.

In recent years, consolidation has changed the automobile, telecommunications and defense industries, and, of course, financial services. Wharton alumni, faculty members and industry analysts say it is likely to continue as banks and securities firms in the United States and Europe jockey to put together the right combination of people, products and assets to achieve competitive advantage and boost global market share. In the investment banking business, that means attaining or retaining "bulge bracket" status — Wall Street jargon for the most elite investment banks.