CSFB closes precious metals business

Leading global investment bank Credit Suisse First Boston is to close its London, New York and Sydney precious metals market-making and structured derivatives, clearing and vaulting businesses.

CSFB said it would resign from being a market-making member of the London Bullion Market Association (LBMA) and London Gold Fixing. The firm will remain an ordinary member of the LBMA.

CSFB added that it would satisfy all existing long-term hedge contracts with gold and silver producers. The firm has no net hedge or market position and said no market movement is expected as a result of this action.

This move is thought to be part of a broad cost-cutting initiative to eliminate $1 billion in operating costs by the end of 2002, including a reduction of 2,000 staff around the world. Parent Credit Suisse Group said it anticipated third-quarter operating losses of Sfr300 million ($187 million) at its CSFB investment banking unit, reflecting difficult market conditions and the impact of the September 11 terrorist attacks. Revenue was down 20% and 26%, compared to the second and first quarters, respectively.

CSFB chief executive, John Mack, said the firm needed to “compete effectively with other top-tier financial services firms” and “align the size of our business with changing market conditions”.

The bank said job losses resulting from the closing of the precious metals businesses were included in the previously announced headcount reduction figures.

CSFB became a member of the five-member London Gold Fixing, alongside NM Rothschild, Scotia Moccatta, HSBC and Deutsche Bank, which sets the benchmark price of gold in London, in May last year. NM Rothschild and Scotia Moccatta have both withdrawn from base metals business over the past week but claim to be committed to precious metals trading.

On Friday, gold was fixed at $281.80. Following September 11 the price has seen only a modest rise compared to peak values in 1980.

A senior figure in the gold trading community said liquidity would probably be affected in the short-term, but that other companies in the wings were building up their precious markets business and could be keen to step in. There was some regret that CSFB had decided to withdraw after building a strong name for itself in fixing.

Clive Turner, chairman of London Gold Fixing at NM Rothschild, said: “Although we are disappointed that CFSB has decided to resign, this will not affect the integrity of the London Gold Fixing which will continue to remain to function effectively”.