No win situation for CSFB in India

In the legend of the Sword of Damocles, the threat of punishment is ever-present, and creates a climate of fear as the victim waits for the inevitable fall of the sword on their neck. In CSFB's case, its experience in India may have been more of a Poppadum Guillotine, but after months of waiting, a great deal of appeals and being accused of some previously unknown things, such as "circular trading", it has finally received a two-year ban.

However, a closer look at the ban tends to suggest there is an element of face-saving in this from the regulator's perspective. From what FinanceAsia can gather no fresh evidence was found by the Indian regulator (SEBI) after 14 months of investigation. The accusations that were made in the first few weeks simply stuck. And as our related articles (click below) show, they were somewhat controversial accusations.

If SEBI had found any concrete evidence of wrongdoing, it would naturally have revoked CSFB's broking license, and criminal charges against individuals at CSFB ought to have followed.

Instead it has simply given out a sentence which has retroactive effect. Since CSFB has not been allowed to trade since last March, this means CSFB's two year ban will end next March.

Many now regard the share scam of last March as a wholly political affair. No one will ever really know. India is a murky place where politics is concerned. Bizarrely, CSFB still managed to win government mandates - such as the sale of a stake in VSNL to Tata - while being banned, a seemingly contradictory situation.

However, for CSFB the ban throws up a business dilemma. Given it has downsized its Asian business in the past six months, the prospect of having 30 staff in India earning no revenues is not an enticing one.

And yet it has an excellent team of people - a team that it would find hard to rebuild. It's research team includes Ashis Kumar, Asit Shah and Rajesh Sunderesan. Even in spite of being unable to trade in the last year, they still managed to grab the number two team spot in the Institutional Investor poll this year - beaten out narrowly by DSP Merrill Lynch.

Apart from the 10 in research, CSFB has 10 in sales and trading. The remainder are in operations.

All are local staff, which means their basic remuneration is not of the magnitude of a Tokyo or Hong Kong-based staffer. However, for these top names offers from elsewhere will include the potential upside from a bonus pool. Will CSFB be able to match this? How does CSFB create a bonus pool on zero revenues?

CSFB, however, knows that if they do leave, it will have to start hiring again around Christmas, to be ready to re-open in April.

This will be the dilemma for CSFB's new boss, Paul Calello.

Meanwhile, some of the stars in sales and trading might as well take a long holiday. Unlike those in research, who can still write for their clients, the salespeople and the traders can do nothing productive for the firm.