Profit warning by Swiss bank

CS Holding yesterday added its name to the lengthening list of Swiss banks that are making profit warnings. The bank, which also owns CS First Boston, expects to make a loss of around SFr2.1bn (pounds 943m) for this year.

The bank is making SFr5.1bn of provisions to cover bad loans, as the domestic economy continues to suffer from six years of recession. Standard & Poor's yesterday acted on the news, lowering the bank's long term credit rating from "AA+" to "AA".

"It's a massive charge, but it was to be expected, given what's happened at the other Swiss banks," said Thomas Kalbermatten, an analyst at UBS. Last month Union Bank of Switzerland said it would make a record SFr0.5bn loss after announcing SFr3bn of provisions

CS also plans to divest its 44.9 per cent holding in Electrowatt, an energy company, to a consortium made up of Bayernwerk, Badenwerk and Energieversorgung Schwagen, three German energy companies, and Nordostscheweizerische Kraftwerke, a Swiss utility. The disposal will result in a profit of around SFr1bn.

CS said it had taken a new approach to making provisions for bad debts. Instead of using a calculation based on defaults which have actually taken place, it uses an estimation of expected losses.

The charge for provisions comprises several elements. CS is setting aside SFr630m for credit risk while it makes the transition to the new methodology. It is also setting aside a fluctuation reserve of SFr2.0bn. Approximately SFr450m of this will come from the bank's reserve for general bank risks and SFr1.55bn will be charged to the profit and loss account.

A further extraordinary provision of SFr600m will be taken to cover Vertiga, its subsidiary set up to hold high-risk credit provisions.

In total, SFr450m will be set aside for extraordinary depreciation.