Credit Suisse Posts Third-Quarter Loss on Writedowns

October 24, 2008 at 8:49 am Leave a comment

Business Section on SOUGHT CONTENT.

Credit Suisse Posts Third-Quarter Loss on Writedowns

Credit Suisse Group AG reported its second quarterly loss this year after writing down the value of leveraged loans and mortgage-backed securities, and as financial market swings hurt trading.

The third-quarter net loss was 1.26 billion Swiss francs ($1.08 billion), compared with a profit of 1.3 billion francs a year ago, Switzerland’s second-biggest bank said today from Zurich. The result matched a preliminary estimate published last week and included about 1.7 billion francs of trading losses.

Credit Suisse fell as much as 3.9 percent in Swiss trading after Chief Executive Officer Brady Dougan said he’s “cautious” on the outlook for the fourth quarter and that markets remain “very challenging”. The bank declined to join UBS AG in seeking government assistance last week, and instead raised 10 billion francs from investors in Qatar, Israel and Saudi Arabia to show the bank can weather the financial crisis alone.

“Credit Suisse cannot walk on water”, Stefan-Michael Stalmann, an analyst at Dresdner Kleinwort with a “hold” recommendation on the stock, said in a note. “The sheer magnitude of underlying trading losses largely in September are a big set-back to management’s strategy of making the investment bank a more reliable, less volatile performer.”

Credit Suisse fell 1.44 francs, or 3.1 percent, to 45.1 francs by 9:26 a.m., bringing the decline this year to 34 percent. That compares with a 53 percent drop in the 69-member Bloomberg Europe Banks and Financial Services Index.

‘Very Extreme’

The securities unit had a pretax loss of 3.23 billion francs after taking writedowns of 2.43 billion francs on leveraged finance and structured products. Losses were cushioned by gains of 1.88 billion francs Credit Suisse booked on its own debt.

Credit Suisse had losses in trading on securities of financial institutions, convertible bonds, as well as long-short and event and risk-arbitrage equity trading strategies.

“The third quarter and particularly September were very extreme in terms of market movements”, Dougan, 49, said last week. “It is just a validation of the strategy of continuing to reduce the risk in the investment bank, diversifying the revenue streams, and, if anything, just makes us want to redouble the efforts to do so.”

Credit Suisse cut economic risk capital allocated to the investment bank by about 20 percent this year as of the end of September, Dougan said. The bank also reduced headcount in leveraged finance, commercial and residential mortgage-backed securities and collateralized debt obligations, while adding more resources to commodities, equity derivatives and prime services.

Seeking Market Share

Dougan has said that he wants to grab a larger market share in investment banking while rivals including UBS are scaling back. UBS, which last week received a $59.2 billion rescue package from the Swiss government and the central bank, posted third-quarter net income of 296 million francs after booking tax credits of 912 million francs.

“Whilst we do not believe that Credit Suisse’s investment bank is under such pressure as UBS’s, we do think it will struggle in the current environment”, Sanford Bernstein & Co. analysts including Dirk Hoffmann-Becking said in a note. The analysts, who rate Credit Suisse shares “market perform,” estimated Credit Suisse had trading losses of 3 billion francs to 3.5 billion francs last quarter.

Wealth Management

Profit at the private banking division fell to 789 million francs from 1.29 billion francs a year earlier, hurt by a 310 million-franc provision for an agreement to buy back auction-rate securities. The asset management unit had a pretax loss of 58 million francs, compared with a profit of 45 million francs a year earlier.

The bank, seeking to bolster its wealth management as UBS reels from record losses and client withdrawals, hired 340 private bankers in the first nine months of this year, putting it ahead of a target to win 1,000 relationship managers through 2010, Dougan has said.

Credit Suisse attracted 11.3 billion francs in net new money at the wealth management unit and 3.2 billion francs at the Swiss corporate and retail banking business in the third quarter. Clients at the asset management unit withdrew a net 16.5 billion francs. UBS, the world’s biggest money manager for the rich, said wealthy clients were responsible for about 66 billion francs of money outflows in the same period.

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