Credit Suisse shocked the market yesterday after admitting $1bn (£510m) had been wiped off its first-quarter profits by worsening market conditions, and that it had suspended "a small number" of traders who had contributed to the losses with pricing errors.
The Swiss banking giant said it had been forced to write down $2.85bn on asset-backed securities in the first three months of the year, less than a week after its chief executive had praised the bank's resilience in the wake of the credit crunch. The news, described by one analyst as "embarrassing", sent its share price spiralling down as much as 10 per cent in the morning, although the stock rallied slightly to end 7.22 per cent down at Sfr52.65.
A spokesman for Credit Suisse said the market had been warned at last week's full-year results that the markets continued to be uncertain, and added: "The overall picture doesn't really change. We still think we did well in managing through these markets." He pointed out that the bank still expected to return a profit in the first quarter.
Credit Suisse said the heavy losses were brought to light after it was forced to re-price some asset-backed securities. The spokesman said the errors were picked up as part of its standard procedures "a couple of days ago", which led to it launching an internal review. The bank was required to announce the losses in connection with a bond closing yesterday.
This review into the structured credit trading operation also identified "mismarkings and pricing errors by a small number of traders in certain positions in our structured credit trading business".
The bank confirmed that some traders had been suspended, but added that they had contributed only a minority of the losses announced yesterday. Their actions are still under review.
The news is embarrassing as banks have moved to tighten their controls on traders and practices, after Société Gé*érale ann-ounced last month that it had fallen victim to the worst rogue trading scandal ever. Credit Suisse said the review was instigated following its control procedures and had nothing to do with SocGen.
Jeremy Sigee, an analyst at Citigroup, said in a note: "This may make investors nervous about other problems yet to come to light and/or dent confidence in the company's risk controls more broadly."
The Swiss group added that the final determination of the losses would depend on further findings of its review, which is ongoing. "We will also assess whether any portion of these reductions could affect 2007 results."
Credit Suisse revealed last week that it has fared better than many of its rivals after the credit crunch, writing down a comparatively small Sfr2.07bn for 2007. Brady Dougan, the group's chairman and chief executive, told investors last week: "Our performance in 2007 provides a strong foundation for 2008."
Bob McDowall, a senior analyst at the research company TowerGroup, said: "It is very embarrassing for Credit Suisse that it has come to light only a week after the announcement of 2007 full-year earnings."
Its larger rival UBS wrote down Sfr15.6bn in the fourth quarter alone.Reuse content