Credit Suisse dives on rights issue fears

Credit Suisse failed to stave off another massive slump in its share price yesterday despite attempts to reassure the market that the banking group has sufficient reserves and is not planning to raise capital.

The group issued a terse statement after its shares fell by as much as 15 per cent to reach a nine-year low in Zurich, saying it was "not aware of any objective reasons" as to why the share price had fallen so dramatically over the past two days. It said "present capital resources remain adequate, and no capital increase of the group is planned." The statement caused the slump in the stock price to narrow slightly, but the shares in London still closed down 13 per cent at 921p, after a record 14 per cent slump on Thursday.

Deutsche Bank also suffered a substantial fall yesterday amid fears it will shortly announce it too is being affected by the mis-fortunes in the banking sector and issue a profits warning. Its shares fell 11 per cent.

Credit Suisse has sustained a substantial decline over the past week, which has seen almost one quarter of the company's value wiped off the stock. It announced on Wednesday its insurance division Winterthur was receiving an injection of 2bn Swiss francs (£866m) and its investment bank, Credit Suisse First Boston, would post a third-quarter operating loss because of lower revenue and costs.

Credit Suisse has put Sfr3.7bn into Winterthur since June, including Sfr2bn this week. Standard & Poor's has said it may cut Credit Suisse's credit rating for a second time since May over concerns Winterthur may need more capital.

Fears the group is facing widening losses have persisted in drumming down the share price. Some analysts have estimated the company will post a third-quarter loss of Sfr1bn.

Deutsche Bank may be experiencing similar difficulties in its investment banking division, but analysts do not believe Deutsche is suffering to the same extent as Credit Suisse.

Keith Baird, an analyst at Prudential Bache, said while he would not be surprised if Deutsche Bank posted a slump in profits, it will be faring better than Credit Suisse. "Credit Suisse has had problems with its insurance arm but the market is most upset about the profits warning from the investment bank," he said. "By extension, Deutsche has a large investment bank and if CSFB is having problems, Deutsche will be too. But Deutsche does not have the insurance problem and its investment banking is skewed towards Europe where conditions have been better."

Lukas Muhlemann, who was behind Credit Suisse's $22bn push into insurance and investment banking, is stepping down as chief executive in December. John Mack and Oswald Grübel will replace him.