Credit Suisse astounds with $2.8bn mark-down

by Dave Nixon

Story link: Credit Suisse astounds with $2.8bn mark-down

Credit Suisse sent new tremors throughout the banking quarter Tuesday when it revealed $2.85bn of mark-downs on structured credit positions caused partially by “pricing errors” by some of the Swiss investment bank’s traders.

Credit Suisse has suspended a number of traders in relation with the writedown. It said they continued as employees of the bank in anticipation of the result of a review.

Additionally The Financial Times has learnt that the bank has suspended its global head of the collateralised debt obligations, Kareem Serageldin.

Brady Dougan, chief executive of the bank, previously supposed to be amongst the most resilient to the credit mayhem would not corroborate either the names or number of traders implicated.

Credit Suisse said the losses would depress first-quarter net income by an anticipated $1bn, though it would still make a profit in the period. Conversely, its 2007 results were also being reviewed. The bank made net income of SFr8.55bn ($7.8bn) last year.

Mr Dougan said he had been oblivious to the situation when he presented the group results last week. He said it was obviously very disappointing for us and that they do still feel that, notwithstanding these issues, they have performed well relative to the industry.

Shares in Credit Suisse closed down 6.6 per cent, at SFr53, pulling other European bank stocks lower. Analysts said they were bewildered that Credit Suisse had no suspicion of the problems when it issued its results.

The losses were acquired on the bank’s holdings in multifaceted credit assets known as residential mortgage-backed securities and collateralized debt obligations.

These are custom-made securities whose value depends on pools of other credit assets, such as mortgages and loans. In many cases they are uncovered to the US subprime mortgage market.

The losses surfaced during a review of the bank’s trading positions last week. The bank expressed the review was “ad hoc” and part of its standard risk management procedures, and had not been prompted by any particular concern.

One insider said the review had intended to see whether the bank could recognize greater efficiencies in the approach it managed and internally reported its positions. Credit Suisse said that though the positions had been valued daily in accord with its rules, the valuations themselves had been out of date.

It said it had yet to ascertain whether the mis-statements were premeditated, saying that its review was continuing. However, it stressed that there had been no fabricated trading positions like those at the centre of the trading losses made up by a junior trader, Jérôme Kerviel, at France’s Société Générale last month.

Credit Suisse said that the final determination of these reductions depends on further results of their review and continuing market developments.

The revelation was made since the bank was in the course of finishing a $2bn 10-year bond issue, which would otherwise have had to be pulled. Credit Suisse has latterly worked hard under the guidance of Mr Dougan to liberate itself of a reputation for unpredictable results caused by a culture of disproportionate risk-taking.