Credit Suisse sets aside $450m for legal battles

Credit Suisse admitted yesterday it was expecting a series of lawsuits from private investors over the coming year, prompting it to provision $450m (£281m) to fight the cases and potentially pay compensation.

The sum will contribute towards a $790m net loss for the investment bank in the fourth quarter and a $1.2bn full-year loss.

The pre-tax charge reflects potential litigation against the Swiss banking giant's investment banking arm, Credit Suisse First Boston, over analyst independence, stock allocation in initial public offerings it handled and its involvement with Enron, the energy trader that collapsed last year. The charge also reflects "other related litigation", Credit Suisse said.

The bank warned it could not be sure what the final financial impact of the litigation would be, raising the possibility that it might have to increase its provision again this year.

CSFB has already been asked to pay $150m as part of a global settlement in December brokered by the New York State Attorney General, Eliot Spitzer, after Mr Spitzer revealed a series of shocking details of the ways in which investment banks organised their research and allocated shares.

Separately Citigroup, the world's biggest bank, said its quarterly profit fell by more than a third, weighed down by an after-tax charge of $1.55bn to cover costs from litigation, regulation and bad loans to corporations. The bank reported net income of $2.43bn for the fourth quarter, compared with $3.88bn in the same period last year.

The fourth-quarter results included a previously announced $1.3bn after-tax charge to set up reserves to cover the Spitzer settlement. The charge also includes a $254m after-tax increase to loan loss reserves.

Analysts said if other major investment banks made provisions on the same scale, the industry could take a hit of more than $3bn arising from investor lawsuits over biased stock research and other issues.

Credit Suisse attempted to strike an upbeat note, despite the rocky ride it and its rivals have had in the past year. Phil Ryan, Credit Suisse's finance director, said the group was on course for profits this year, having packed as much of the bad news as possible into 2002.

Credit Suisse promoted John Mack to joint head of its investment bank last year in an attempt to bring down costs. Mr Mack, nicknamed "Mack the knife", said the bank had stripped out $3bn of costs since 2001 and would continue.

The bank did show some signs that its biggest problems are behind it. Winterthur, the insurer, returned to profit in the fourth quarter. It was one of the biggest drags on Credit Suisse's balance sheet last year.