Rogue traders force Credit Suisse into £1.4bn writedown

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The Independent Online

Credit Suisse faced a double whammy of bad news yesterday, revealing it is almost certain to plunge into loss during the first quarter of this year and admitting a group of rogue traders in its London office had forced it to write down the value of its assets by SFr2.86bn (£1.43bn).

Brady Dougan, the investment bank's chief executive, said that, even after the effect of the rogue traders' activities, Credit Suisse had remained profitable until the end of February but warned difficult market conditions in March had plunged it into losses for the first three months of 2008.

While Credit Suisse's disappointing announcement was in contrast to the better-than-expected earnings updates from leading US investment banks this week, Mr Dougan said there was no question of any shortfalls in liquidity or capital at the bank. "We are one of the world's best-capitalised banks and our funding is conservative," he insisted.

However, analysts warned the bank's reputation would be damaged. "This is clearly embarrassing for Credit Suisse and further damages the reputation it had worked so hard to improve," said Peter Thorne, an analyst at Helvea. "Whilst we suspect that the bank has less suspect assets than UBS, our confidence in this view has diminished considerably."

Mr Dougan last night pledged stringent new supervision systems would ensure Credit Suisse suffered no repeat of the rogue trader incident, in which a handful of staff have been sacked or suspended and referred to regulators.

The traders concerned worked in Credit Suisse's Canary Wharf office, trading asset-backed securities in the investment bank's collateralised debt obligations (CDO) business. The securities are classed as "level two assets", where the lack of a liquid market means there is no minute-by-minute or daily price visible to all investors. Instead, traders have some discretion to calculate the value of the assets for themselves each day, using data and computer models set down by the bank.

Credit Suisse said last month it had suspended a handful of traders after discovering their holdings had been mispriced. The investment bank initially believed the traders had made mistakes, but yesterday revealed it had uncovered evidence that a handful of traders had deliberately used out-of-date data when calculating the value of their holdings in order to artificially inflate the apparent value of their positions.

The bank also admitted that monthly reviews of pricing – the system through which it is supposed to check on traders' activities – had not taken place in the business affected. As a result, the problem was picked up more much slowly than it should have been.

The investment bank said the mispricing meant it had overstated the value of its assets by SFr1.18bn in the last quarter of 2007 and by a further 1.68bn in the first quarter of this year. "This incident is unacceptable and it does not represent the high standard of Credit Suisse," Mr Dougan added. "Our overall control framework remains sound."

The bank's board said it would accept responsibility for the scandal, with executive directors agreeing an average reduction of 35 per cent in their pay for 2007.