The Swiss banking industry suffered another blow yesterday as Credit Suisse, until now seen as a mild casualty of the financial crisis, plunged to a first-quarter loss because of big credit crunch writedowns.
Potential losses on leveraged finance and structured credit of SFr5.3bn (£2.6bn) drove Switzerland's second-biggest bank to a SFr2.15bn loss for the first three months of the year. The charges are slight compared with the $19bn (£9.6bn) of first-quarter writedowns by its bigger rival UBS, but Credit Suisse can no longer claim to be largely unaffected by the market meltdown.
"Our first-quarter results are clearly unsatisfactory," Brady Dougan, Credit Suisse's chief executive, said. The bank said that markets had stabilised in April but that it was too early to call an end to the writedowns.
"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," Mr Dougan added.
The bank's first quarterly loss for five years was bigger than the SFr857m average forecast by analysts but uncertainty over the size of the writedowns had caused estimates to diverge.
The damage was done at Credit Suisse's investment bank, which suffered a SFr3.5bn pre-tax loss compared with a SFr1.99bn profit a year earlier. The writedowns came on top of a big drop in fixed-income trading revenues.
The bank reduced its risk exposure by 41 per cent in leveraged finance and by 25 per cent in commercial mortgages from the fourth quarter. Mr Dougan said further writedowns could not be ruled out.
But the bank's shares rose 4.2 per cent after Mr Dougan said its capital position was strong. Credit Suisse reported a tier one capital ratio of 9.8 per cent, down from 10 per cent at the end of last year but still relatively healthy compared with those of rivals that have been forced to raise capital.
"We are not in times where the market values earnings power. The market values strong balance sheets," Sal Oppenheim analysts said in a note.
Credit Suisse's core wealth management business showed no sign of being harmed by fallout at its investment bank. Net new money inflows were SFr13.5bn in the first quarter. Inflows in Switzerland were SFr5.3bn, a stark contrast to UBS, which has reported Swiss clients taking out their money.
UBS has been forced to raise SFr15bn in a rights issue to shore up its capital position in an effort to boost confidence among wealthy clients, who had become nervous because of the bank's rocky capital position.
Credit Suisse shares closed at SFr54.75.Reuse content