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Credit Suisse Writes Down $5.26 Billion

Reuters
Thursday, 24 Apr 2008 | 4:29 AM ET

Credit Suisse notched up a further 5.3 billion Swiss francs ($5.26 billion) of credit-linked writedowns but its core rich clients kept their money at the bank unlike those of rival UBS.

Markets had stabilized in April but Credit Suissewas not counting on an improvement yet, it said on Thursday, and it was hard to say whether there would be any further writedowns on its risky investments.

"In this crisis, a number of times people have seen a light at the end of the tunnel and it has ended up being a train coming down the tracks," Chief Executive Brady Dougan told reporters on a conference call.

Credit Suisse has been hit by the credit crisis to a much lesser degree than its larger rival UBS, Europe's largest casualty of the crisis, which on Wednesday said it would cut back its investment bank after heavy writedowns.

Net new money inflows into Credit Suisse's key wealth management business were 13.5 billion francs in the first quarter, confounding fears that problems in its investment bank were spreading into its key rich clients business.

Inflows in Switzerland were 5.3 billion francs in the period, in contrast to UBS which has said private clients have been pulling out money in Switzerland.

Wealthy clients are easily irked by negative headlines mentioning their banks and smaller banks in Switzerland, which have no exposure to investment banking, have been saying they are benefiting as UBS suffers.

Shares Get Boost

Credit Suisse's first-quarter loss was 2.1 billion francs, but the shares got a boost as markets took heart from the fact that the numbers contained no further negative surprises.

What's Next for Credit Suisse?
"What (Credit Suisse Chief Executive Brady Dougan) did for us is create a huge buying opportunity because I believe in the second quarter, we'll see write-ups rather than write-downs," Johannes Roth from FiveT Capital told CNBC as he discussed the bank's negative figures.

"We're now seeing these write-downs, but they had already been priced in. Estimates had been made a while ago and the consensus was too optimistic," said Andreas Venditti, an analyst at Zuercher Kantonalbank.

The stock rose some 2 percent to 53.50 francs in early trading, to then turn into a slight loss at 52.20 francs.

The quarterly loss, the bank's first in five years, was bigger than the loss of 857 million francs pencilled in by analysts in a Reuters survey, but uncertainty over the extent of the writedowns had made forecasting hard.

Credit Suisse said it had reduced its risk exposure by 41 percent in leveraged finance and by 25 percent in commercial mortgages. It would not rule out any further writedowns, saying it still had substantial exposure on its books.

"It's hard to predict whether there will be any more writedowns or not," Dougan said.

CS had already said it would write off 1.7 billion francs in credit derivatives in the first quarter because of a trading scandal. Analysts had expected it to write down more, with estimates ranging between $3 billion and $8 billion.

The bank's tier 1 capital ratio, a key measure of financial health, inched down to 9.8 percent from 10 percent at the end of last year, a level analysts said was still relatively healthy as other banks have needed to revert to large rights issues.

"We are not in times where the market values earnings power. The market values strong balance sheets ... the relative positive Tier 1 ratio surprise could justify some relief," Sal. Oppenheim analyst Javier Lodeiro said in a note.

CS is trading at around eight times expected 2009 earnings, roughly in line with the sector average.

Rival UBS is trading at a 10 times multiple.

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