A splashy beginning
Founded in 1959 by three Harvard MBAs, Donaldson, Lufkin & Jenrette (DLJ) has grown into one of Wall Street's most influential investment banks. DLJ was first known on Wall Street as a research firm. Its reputation soon expanded - in 1970, DLJ created a media sensation by becoming the first New York Stock Exchange member firm to go public on the exchange. DLJ leapt wholeheartedly into the hostile takeover market of the 1980s, advising legendary corporate raider T. Boone Pickens on some of his more audacious forays.
High-flying risk takers
DLJ probably won't be offended if you call it junky - the firm has profited enormously from underwriting junk bonds (high-yield debt) at a time when other banks thought the category was dead for good. In fact, when the fiefdom of junk bond czar Michael Milken and Drexel Burnham Lambert imploded in 1991, DLJ zoomed in and scooped up Drexel's best and brightest, unlike other firms, who shied away from scandal. Today, DLJ is the perennial leader in junk bond underwriting. In 1999, the firm was No. 1 among all underwriters of high-yield debt, lead-underwriting $17.5 billion in junk bonds.
Not all junk
While capitalizing on its strong junk bond practice, DLJ is also looking to grow its other businesses. For example, although it's not an especially lucrative business, DLJ has been targeting growth in investment-grade bond underwriting and trading. The firm has recently hired several senior investment bankers to build this business. While high-grade debt has low profit margins, the growth of the group is necessary in order for DLJ to be perceived as a full-service investment bank. In 1999, as in previous years, DLJ ranked No. 10 in the league tables of investment-grade bond underwriting.
In other businesses for which it is not as well known, such as stock underwriting and underwriting convertible securities (bonds that can be converted to stock), the firm is among Wall Street's leaders. The firm ranked No. 6 in common stock underwriting in 1999. In that year, DLJ lead-managed IPOs for Goto.com, Jupiter Communications, SciQuest.com, and Xpedior. Increased strength in technology banking should complement DLJ's successful venture capital affiliate, the Sprout Group. In January 2000, the Sprout Group co-led a $21 million second round of investment in Silicon Access Technology, Inc.
In others business areas, such as mergers and acquisitions, DLJ is playing some impressive catch-up. The firm ranked No. 12 in completed global M&A in 1998, and No. 6 in 1999. It has handled some recent high-profile advisory roles, such as AT&T's $70 billion acquisition of Telecommunications Inc. (working for TCI) and advising Olivetti in its much-publicized hostile takeover of former Italian monopoly Telecom Italia in 1999. In 1999, DLJ ranked No. 4 among advisors of completed U.S. M&A transactions (up from the No. 12 spot the before), advising on deals valued at $254.3 billion. In 1999, DLJ raked in a record $883 million in M&A advisory fees.
DLJ's current focus is on expanding overseas, particularly in Europe, with an emphasis on growing its presence in London. In early 1997, DLJ agreed to buy a London-based firm, Phoenix Group, as part of its efforts to penetrate the European market. That year, it established a junk bond group in the London office, and boosted other investment banking capabilities. The firm set up a private banking operation in London in late '97, specializing in "off the screen" entrepreneurial investments. The private banking group was the first such overseas group for the bank. In April 1998, DLJ passed the $1 billion mark in assets under management for private banking. When longtime CEO John Chalsty stepped down and handed the reins to Joe Roby in February 1998, the expansion in Europe, and particularly in London, was Roby's main stated concern.
In the past two years, DLJ has created 1,000 jobs in London alone, and is active on the Continent in underwriting junk bonds, M&A advisory, and equity research and trading. In 1999 the firm advised Olivetti in its high-profile hostile takeover of Telecom Italia, and co-advised AXA in its acquisition of Guardian Royal Exchange. In November 1999, DLJ announced plans to hire up to 75 more investment bankers in Europe. Jim Alexandre, president of DLJ International told the Financial News that DLJ International is "absolutely, positively in aggressive growth mode right now."
DLJ's operations are organized around four major divisions: investment banking, equity, fixed income, and financial services. The Banking Group covers investment banking, the firm's successful merchant banking operation, venture capital (the Sprout Group), and new security issues management and underwriting. What was formerly known as the Capital Markets Group is now split into two divisions, the Equity Group and the Fixed Income Group. These groups provide research, securities trading, and sales services to institutional clients.
The fourth major division at DLJ is the Financial Services Group. This division rivals the other groups in revenue and far exceeds them in terms of employees. Aside from asset management, the Financial Services Group's main businesses are subsidiaries that do not offer what are generally considered core I-banking services. Several of these, such as DLJdirect (one of the country's leading online brokerage systems) and the Pershing Division, have been pioneers in the use of technology in the financial services industry. Pershing provides a range of trade execution, clearing, and information management services to securities services and investment advisers - and was an early entry in electronic distribution. Due in large part to the success of DLJdirect and Internet IPO fever, as well as the anticipation of a spinoff of the online trading subsidiary, the firm saw its stock rise in 1999. DLJ issued tracking stock for DLJdirect in May 1999.
DLJ manages its recruiting process from its New York headquarters in coordination with its regional offices. For a comprehensive list of the dates and locations of DLJ?s on-campus recruiting, visit the firm's "Career Opportunities" web page, located at the firm's web site, www.dlj.com. At key schools, the firm makes presentations, sending bigwigs such as the CEO or head of investment banking. I-Banking now recruits on-campus at 16 different schools.
The number of rounds and interview process for analysts depends on the size of the school. The process generally ends, however with a "super day." This super day involves a trip to the office where the candidate is being considered, usually on a Saturday, but sometimes a Friday or another day. On these days, the firm brings in many candidates, maybe 20 to 30, on the same day. "At the end of day, all of the interviewers get together in a room and debate for several hours until they reach consensus on all candidates," explains one recruiter. "They also have before them all written feedback from earlier rounds."
For analysts, the super day is actually a half-day: The analysts arrive in the morning, and have five to six half-hour interviews. Most interviews involve one candidate and two interviewers. At lunch, all the candidates and interviewers eat together, an event that no doubt decreases the appetite of some anxious interviewees. (Sometimes, the super day starts in the afternoon, and begins with this lunch.)
DLJ has a three- to four-round interview process for MBAs. The first round is held on campus, the second at a hotel near the school, and the third "super day" round at the office for which the candidate is being considered. Both of the first two rounds involve two-on-one interviews. During the second round, held at local hotels, candidates undergo two half-hour two-on-ones. "We like to do two-on-ones," notes a recruiter. The MBA super day process (the final round) is similar to the final round for analysts -- expect four to five hours. Insiders tell us that DLJ will call candidates for a fourth round of interviews if a candidate is being considered for a specialty group position and has not had a chance to meet enough bankers in that group. The firm recruits at 15 schools for its investment services division (the division that covers high net worth and small institutions). For investment services, the first round is on campus, the second round at the local office the candidate is being considered for, with a third round in NY. For equities trading, the firm holds a first round interview on campus, and a second round in New York. For each of these, the first round is a two-on-one interview.
DLJ has a "fiercely entrepreneurial" culture that is "individualistic and exciting," employees say. One Los Angeles-based analyst suggests that "to understand DLJ's culture, think of DLJ and Goldman as being the two opposite poles of the world of investment banking. Goldman is solidly conservative, and extremely team-oriented. DLJ is daring and individualistic." DLJ's Los Angeles office has a particularly "freewheeling and risk-friendly" attitude because of all "the people who came over from Drexel and brought the Drexel attitude over." An associate in the New York office comments that because of DLJ's aggressive attitude "people are better rewarded here for their performance than in other banks. DLJ is more of a meritocracy than other firms. If you work hard, you move through the whole spectrum of jobs really rapidly. Everything that goes on is really based on performance. So there's nothing in the way of people getting moved up more quickly or getting higher compensation if they're doing something good. DLJ keeps the politics away." Another insider in sales and trading agrees: "It is really a meritocracy there, if you get in, you get an opportunity to really excel. If you're making the firm money, then the sky's the limit. The title there is less important than your bonus." Says yet another insider at the firm's headquarters: "It's managed very well, and it's not very political as other places."
This freedom comes at a price. DLJ, insiders say, "puts a lot of pressure on you to perform. DLJ works you harder than some of the other investment firms." The amount of pressure varies from group to group. On the sell side, for example, "high-grade is a lot more laid back than high-yield." Says one research associate about high-yield salespeople and traders: "There are people who will eat you alive if your analysis is off. They control a huge universe of issues and a huge amount of buyers to make that market liquid, and when you present your analysis you had better be ready. These guys are serious. It's like playing for the San Francisco 49ers - you better be prepared." One of DLJ's vice presidents in the Los Angeles office notes, "I think there's a risk that anytime there's a freewheeling culture it can be a tougher place to be for an individual than in places that have sort of a team attitude and group think culture." Insiders are quick to add, however, that DLJ has a "friendly, social corporate environment. There's a lot of firm activities going on around here."
Pay with an edge
At the entry level, DLJ pays "a little better" than other investment banks, especially when it comes to bonuses, according to recent hires. Moreover, the rewards tend to be "substantially higher" as employees climb the corporate hierarchy. But even better than the above-average salary is DLJ's merchant banking program. The firm allows bankers to invest in the merchant banking (similar to private equity or venture capital) investments that the firm chooses. Although not all DLJ professionals are eligible to make the investments (junior employees must wait for their turn), and the investments have vesting periods, long-term employees with DLJ can hit the jackpot through the program. "People make a lot of money that way," reports one insider. "In the good old days it was leveraged 7 to 1, now it's leveraged something like 3 to 1. That's kind of their golden carrot. There are lot of people who won't leave because of these merchant banking deals, one because they aren't completely vested, and also because the gravy keeps coming." Another insider explains the merchant banking program thusly: "It's a 3 to 1 non-recourse loan - if it goes bust, you don't owe them anything, it's all upside, no downside on the loan."
Dress formal, except in L.A.
Like most othe rInvestment Banks, dress at DLJ offices has switched from formal to business casual. But, employees state that "because DLJ people are often at the clients' offices, they often have no choice about dress, and simply have to wear what their client wants-which is generally formal."
Gerald B. Rigg
Manager of Recruiting, Investment Banking
Credit Suisse First Boston;Merrill Lynch;Morgan Stanley Dean Witter;Goldman Sachs;J.P. Morgan;Salomon Smith Barney
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