Brokerage giant Credit Suisse First Boston said Wednesday it will sell its online trading arm to Bank of Montreal, rather than try to make a go of it in the increasingly competitive business.
The Canadian bank will pay $520 million for the online unit, CSFBdirect. The business will be merged into Bank of Montreal's online investing arm, Harris InvestorLine.
For Credit Suisse First Boston, the sale is the latest effort by Chief Executive John Mack to cut expenses by $1 billion as the brokerage reels from reduced stock market trading and lower fee income because of fewer new share offerings and a plunge in merger deals.
The brokerage had acquired the online unit as part of its $13-billion purchase of Donaldson, Lufkin & Jenrette Securities last year. Credit Suisse First Boston changed the name of DLJ's online brokerage from DLJdirect to CSFBdirect and has spent millions advertising it.
"CSFB has spent a lot of money re-branding this asset and now they're walking away from it," said Vincent Fernandez, a Toronto-based fund manager at Altamira Investment Services Inc.
"Hardly anyone is earning money in online trading," said Regina Anhorn, an analyst at Lombard Odier & Cie in Zurich.
All online brokerages have seen revenue and earnings plummet since 1999 as individual investors' interest in the stock market has waned with the long bear market.
Bank of Montreal will gain $16.3billion in assets and 467,000 active trading accounts from CSFBdirect. The deal will boost the bank's U.S. client base by 50%.
But some analysts expressed surprise at the deal price. Bank of Montreal is paying about $1,000 for each of CSFBdirect's active clients. However, CSFBdirect customers tend to be wealthier than those at other online firms, analysts said.