Recent Events -Credit Suisse
72% Drop in Fourth Quarter Earnings
Credit Suisse has announced a 72% fall in quarterly profits. Net profit in the fourth quarter of 2007 was SFr1.33 billion (£619 million), slightly worse than market expectations. Losses on sub-prime investments were SFr2 billion in 2007 - less than it anticipated. The banking giant has been relatively unhurt by the sub-prime mortgage crisis.
However, in spite of a weak trading environment, investment banking remained profitable in the 3 months to December with pre-tax earnings of SFr328 million, down 86% year-on-year. Earnings before tax for the full year fell 19% to SFr4.83 billion.
Job Losses
In January 2007, the bank announced it was to shed some 500 jobs within its bond trading unit as a result of a slowdown in earnings in the sector from the sub-prime mortgage crisis.
Forward View
Brady Dougan, chief executive, commended the bank’s strong foundation for 2008, its good business and geographical mix and its strong risk management capabilities. He added these strengths make me confident in our ability to deliver a superior performance over market cycles. He added that he believed Credit Suisse’s level of transparency and disclosure was now “by far the most complete and transparent” in the business.
However, less than two weeks after the results announcement the bomb dropped…
Re-pricing of certain asset-backed positions
Further to its commitment to provide transparency, Credit Suisse today announced that in connection with the operation of ongoing control processes, it has undertaken an internal review that has resulted in the re-pricing of certain asset-backed positions in its Structured Credit Trading business within Investment Banking. The current total fair value reductions of these positions, which reflect significant adverse first quarter 2008 market developments, are estimated at approximately USD 2.85 billion (having an estimated net income impact of approximately USD 1.0 billion). In the first quarter to date, we estimate we remain profitable after giving effect to these reductions. The final determination of these reductions will depend on further results of our review and continuing market developments. We will also assess whether any portion of these reductions could affect 2007 results. Finally, our internal review, which has identified mismarkings and pricing errors by a small number of traders in certain positions in our Structured Credit Trading business, is continuing.
