Credit Suisse Net Falls on SF1.3 Billion Writedowns

Credit Suisse Net Falls on SF1.3 Billion Writedowns

Feb. 12 (Bloomberg) -- Credit Suisse Group, Switzerland's second-biggest bank, said fourth-quarter profit fell 72 percent on lower earnings at the securities unit after writedowns of 1.3 billion Swiss francs ($1.2 billion) on debt and leveraged loans.

Net income fell to 1.33 billion francs, or 1.21 francs a share, from 4.67 billion francs, or 4.12 francs, a year earlier, the Zurich-based bank said in a statement today. That missed the 1.43 billion-franc median estimate of 11 analysts surveyed by Bloomberg.

Credit Suisse's markdowns in the quarter compare with $14 billion at UBS AG, the country's biggest bank, and 44 million euros ($64 million) at Frankfurt-based Deutsche Bank AG. Chief Executive Officer Brady Dougan scaled down subprime-related holdings before the slump led to more than $145 billion in writedowns and loan losses at the world's biggest banks.

``They've dodged the worst of the bullets in terms of writedowns, certainly in 2007,'' Bear Stearns Cos. analyst Christopher Wheeler said before the release. Earnings now depend on ``how far capital markets revenues fall during the course of 2008,'' he said.

Revenue fell 13 percent to 9.4 billion francs, with investment-banking down 36 percent to 3.9 billion francs on writedowns of leveraged loans, commercial and residential mortgage-backed securities and collateralized debt obligations. The company said it expects ``continuing turmoil in the credit markets'' in the ``near term.''

``We contained the impact of the credit-market dislocation in investment banking and increased revenues from the previous quarter,'' Dougan said in the statement. ``We are well- capitalized and conservatively funded.''

Mortgage Alert

Credit Suisse fell 36 percent in Zurich trading over the past 12 months, cutting its market value to 65.2 billion francs. The 60-member Bloomberg Europe Banks and Financial Services Index fell 34 percent in the same period.

The company got 54 percent of 2006 profit from operations before taxes from the investment-banking unit, which Dougan ran for three years before becoming CEO in May. Credit Suisse booked a gain of 1.82 billion francs in the fourth quarter of 2006 for the sale of its Winterthur insurance unit to AXA SA.

Managers at the SPS mortgage-servicing unit alerted the executive board to concerns about subprime assets in 2006. By the end of that year, the company had originated about 40 percent fewer subprime mortgages than in 2005, Dougan has said.

Credit Suisse had net third-quarter writedowns of 2.2 billion francs on collateralized debt obligations, residential and commercial-backed securities and leveraged loans.

Deutsche Bank

Deutsche Bank, which controls Europe's biggest investment bank by revenue, last week reported a smaller-than-expected decline in fourth-quarter profit, managing to avoid any net writedowns on bonds after booking gains from hedges. CEO Josef Ackermann said the outlook for market-related businesses remains ``challenging'' in 2008.

UBS will publish details on Feb. 14 of its 12.5 billion- franc fourth-quarter loss, the biggest ever for a bank. For the year, UBS's loss amounted to about 4.4 billion francs, it said on Jan. 30, reporting lower earnings than Credit Suisse for the first time since being created in a merger in 1998.

Credit Suisse may suffer this year from a revenue slowdown or potential writedowns from commercial mortgage-backed securities and leveraged loans, analysts including ABN Amro Holding NV's Kinner Lakhani have said.

The bank ranked fifth among global CMBS underwriters in the first nine months of 2007, Lakhani said. It also ranked fifth among bookrunners for leveraged loans in the Europe, Middle East and Africa region last year, according to Bloomberg data.

Job Cuts

Credit Suisse said last month it is cutting about 500 jobs at the investment-banking division worldwide to meet reduced demand for some services. The job cuts will be mainly in the global securities unit, which includes equities and fixed-income trading and origination, it said.

``Going into a likely revenue slowdown, Credit Suisse's investment bank has the advantage of more cautious headcount increases and greater non-staff cost efficiencies over the past three years,'' Citigroup analysts Jeremy Sigee and Kiri Vijayarajah wrote to clients on Feb. 4. ``It may have much greater flexibility than peers.''

At the same time, it plans to expand in private banking by adding about 1,000 wealth management advisers through 2010. The bank has opened new offices in the U.S. as part of a business revamp there and is also looking to invest in operations in Singapore and Hong Kong, where it lags behind competitors.

BLOOMBERG