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Credit Suisse Posts SF2.15 Billion Loss on Writedowns (Update5)

By Elena Logutenkova

April 24 (Bloomberg) -- Credit Suisse Group, Switzerland's second-biggest bank, reported its first loss in almost five years on 5.3 billion Swiss francs ($5.2 billion) of writedowns linked to deteriorating credit markets.

The net loss totaled 2.15 billion francs in the first quarter, compared with a 2.73 billion-franc profit a year earlier, the Zurich-based bank said in a statement today. Credit Suisse rose as much as 3.4 percent in Swiss trading after the company said it's ``comfortable'' with its capital position.

``The only positive thing is that they are not announcing a capital increase, at least not yet,'' said Joerg de Vries-Hippen, who oversees about $26 billion, including Credit Suisse shares, as chief investment officer for European equities at Allianz Global Investors in Frankfurt.

While Chief Executive Officer Brady Dougan said the results were ``clearly unsatisfactory,'' the company's losses have been dwarfed by UBS AG, its larger Swiss rival, which said on April 1 that it will seek 15 billion francs from shareholders to replenish capital after record losses. Royal Bank of Scotland Group Plc announced plans two days ago to raise 12 billion pounds ($23.70 billion) selling stock after debt writedowns.

Credit Suisse rose 1.25 francs, or 2.4 percent, to 53.80 francs by 11:57 a.m. in Zurich. The shares have dropped 21 percent this year, trimming its market value to 62.6 billion francs and pushing the stock in March to the lowest since December 2004. UBS has declined 33 percent so far in 2008.

Writedowns

The world's biggest banks and securities firms have reported credit losses and writedowns of about $290 billion linked to the collapse of the U.S. subprime mortgage market.

Credit Suisse's Tier 1 capital ratio fell to 9.8 percent by the end of the first quarter from 10 percent at the end of 2007. The bank targets a ratio of about 10 percent and feels ``comfortable'' around that level, Dougan told analysts on a conference call.

The investment bank had a pretax loss of 3.46 billion francs in an ``extremely challenging market environment,'' after posting a 1.99 billion-franc profit a year before. Asset management had a loss of 468 million francs after marking down securities the bank purchased from its own money market funds by 566 million francs. The division saw 20.2 billion francs of net withdrawals, its third consecutive quarter of outflows.

The writedowns at the securities unit included collateralized debt obligations that the bank said last month were intentionally mispriced by a ``a small group'' of traders. The bank had writedowns of 2.66 billion francs on CDOs, 1.68 billion francs on leveraged finance and 848 million francs on commercial mortgage-backed securities.

`Not Counting' on Recovery

Profit at the wealth management unit fell 13 percent to 860 million francs, while earnings rose 3 percent to 464 million francs at the corporate and retail banking division. The private bank attracted 17.1 billion francs in net new assets in the quarter, compared with 18.4 billion francs a year earlier.

``Wealth management was the bright spot,'' said Claudia Meier, an analyst at Bank Vontobel in Zurich who has a ``hold'' rating on the stock.

Executives at some of Credit Suisse's biggest competitors have said the global credit-market contraction may be abating. Citigroup Inc. CEO Vikram Pandit said on April 22 that ``we are closer to the end'' than the beginning of the crisis, echoing remarks by Jamie Dimon, his counterpart at JPMorgan Chase & Co., who said April 16 that the credit freeze is more than half over.

On a number of occasions ``people had seen the light at the end of the tunnel and it's been a train coming down the tracks,'' Dougan said today. ``Things have stabilized a bit in April. While we're certainly hopeful that things will improve from here, we're not counting on it.''

Job Cuts

Dougan said he's managing the bank assuming that ``things will continue to be very difficult.'' Credit Suisse is eliminating 500 positions in investment banking and administration as demand for the firm's services declines, it said this week. The cuts bring to 1,320 the total reductions by the bank since the collapse of the subprime market.

The bank may trim 1,500 more jobs, according to an estimate by Kian Abouhossein, a London-based analyst at JPMorgan. Banks and brokerage firms around the world have gotten rid of about 49,000 jobs in the past 10 months to reduce expenses as revenue from fixed income and investment banking tumbles.

Underwriting and advisory revenue at the investment bank more than halved to 704 million francs, and revenue from equities trading slumped 36 percent to 1.34 billion francs because of a proprietary trading loss.

``Investment banking was not very inspiring with the decline in equity trading, underwriting and advisory revenue more than anticipated,'' Vontobel's Meier said.

UBS Scaling Back

UBS said yesterday that it will announce job cuts ``across the board'' at the securities unit in May. The world's biggest money manager said it no longer plans to ``offer everything to everyone in investment banking'' after about $38 billion in writedowns over the past three quarters.

UBS said in a report this week that senior management at the securities unit didn't recognize the severity of its subprime problems until late July, when holdings could no longer be reduced or hedged at ``acceptable'' prices.

Credit Suisse had its own setback last month, when Dougan said an internal review found that traders deliberately mispriced certain debt securities. The episode was first disclosed in February, a week after the bank said its risk management systems helped it sidestep the worst of the subprime market crash.

By the end of the first quarter, the bank had cut its net exposure in CDO trading to about 700 million francs from 1.6 billion francs at year-end, and residential mortgage-backed securities were reduced to 5.5 billion francs from 8.7 billion francs.

Credit Suisse still had 20.8 billion francs in leveraged finance, compared with 35.1 billion francs at the end of 2007, and 19.3 billion francs in commercial mortgage securities, compared with 25.9 billion francs.

To contact the reporter on this story: Elena Logutenkova in Zurich at [e-mail]

Last Updated: April 24, 2008 06:03 EDT