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Credit Suisse Warns on Q1 loss; Shares Plunge - ASHARQ AL-AWSAT English Archive
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ZURICH (Reuters) – Credit Suisse warned on Thursday it could report its first quarterly loss in five years, further eroding the bank’s credibility with investors still shaken by February’s $2.85 billion trading scandal.

The bank’s shares dropped more than 11 percent after it said unprecedented market conditions in March — with wild swings in prices for stock and debt and emergency interventions by major central banks — had introduced new uncertainty and made any profit unlikely for the period.

“This is clearly embarrassing for Credit Suisse and further damages the reputation that it had worked so hard to improve after years of reckless risk taking. Whilst we suspect that the bank has less suspect assets than UBS, our confidence in this view has diminished considerably as a result of these recent announcements,” said Helvea analyst Peter Thorne.

Brady Dougan, the American chief executive of the Swiss-based group, said an investigation revealed “intentional misconduct” by a handful of traders who have since been fired or suspended and said that control mechanisms had failed — but that the scandal involving debt derivatives had not spread beyond one trading unit.

Dougan took pains to highlight how the group still faced difficult market conditions in March, which investors took to mean that more writedowns on the group’s portfolio of risky assets were possible.

The group has already written down around 5.8 billion Swiss francs ($5.73 billion) related to the trading scandal and the credit crisis — far less than the $18 billion absorbed by rival UBS AG, Europe’s hardest-hit bank.

“We’re operating in extremely volatile markets. The stress on the industry is evident,” Dougan said in a conference call.

CS shares pared losses to down 7.5 percent to 47.90 Swiss francs by 1444 GMT, having hit 46.10. Credit Suisse shares have shed around 50 percent since May last year.

Doubts still nag about whether the bank can escape the credit crisis so lightly. Analysts say Dougan’s warning on profits points to more writedowns on asset classes that have come under stress in the credit crisis.

Credit Suisse had already shocked markets in February by writing down $2.85 billion from the trading scandal, an amount the bank reduced by 200 million francs ($201 million) to 2.86 billion francs on Thursday.

And the bank still holds large exposures to instruments that investors increasingly deem at risk. Those include 36 billion francs in leveraged finance investments and 26 billion francs on commercial real estate securities.

“The main reason for the group not being profitable in 1Q 08 and the negative impact in March will be due to mark-downs on these positions as well as potentially weaker prop trading,” said analysts at J.P. Morgan in a note.

Only last month, CS said it expected to post a profit for the first quarter and estimated that the writedowns would wipe $1 billion from its net income, after taking into account tax credits and cancelling some staff bonuses.

Credit Suisse now said it would post a writedown of 1.18 billion francs against its 2007 accounts — which translated into a hit of 789 million francs net of tax — and of 1.68 billion francs against its first quarter 2008 accounts.

The writedowns are the latest in a string of shocks from global banks, including huge new subprime-related exposures at rival UBS and the emergency takeover of U.S. investment bank Bear Stearns by rival J.P. Morgan.

Bank shares staged a brief rebound this week after results from some U.S. investment banks for the three-month period ending in February came in better than expected. The DJ Stoxx European bank sector fell 1.5 percent in the wake of the Credit Suisse news.

“This is a good example of how the results from U.S. investment banks in the past several days is not an all-clear signal for the financial sector because it only covers the December-to-February period,” said analysts at bank ZKB.

A loss in the first quarter of 2008 would be its first quarterly loss since the second quarter of 2003.