The Wall Street Journal-20080213-Credit Crunch- Credit Suisse Warns of Risks From Subprime
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Credit Crunch: Credit Suisse Warns of Risks From Subprime
Full Text (457 words)ZURICH -- Credit Suisse Group, one of the few investment banks that has remained relatively unscathed by the U.S. subprime-mortgage crisis, deepened the banking sector's outlook yesterday as it warned of a difficult year ahead.
The bank's fourth-quarter earnings partly exceeded expectations, despite mainly subprime-related write-downs of 2.07 billion Swiss francs ($1.88 billion). But it said that its clients' risk appetite was eroding, and that the bank was still sitting on a considerable pile of troublesome financial holdings.
"Coming into 2008 we clearly see risks," said Chief Executive Brady Dougan, adding that the bank was "well-positioned" to perform better than its peers.
The bank also said it had received subpoenas and requests for information from regulators related to its involvement in the business of making, buying and repackaging subprime and other mortgage loans.
The Securities and Exchange Commission and federal prosecutors have opened probes into subprime-related issues at UBS AG, Merrill Lynch & Co. and Bear Stearns Cos.
Credit Suisse reported net profit in the fourth quarter fell to 1.33 billion francs, from 4.67 billion francs a year earlier, when the sale of insurer Winterthur and a buoyant investment-banking business bolstered earnings. It also said that its asset-management business, in its effort to prop up money-market funds hit by the subprime crisis, had been forced to take a write-down of 774 million francs.
The results mean that Credit Suisse has weathered the subprime storm far better than rivals.
Credit Suisse's detailed disclosure of its holdings, though, raised concerns that more write-downs will haunt the bank this year. It said it still has on its books 26 billion francs of commercial mortgage securities, 36 billion francs of so-called leveraged loans made to finance corporate buyouts, and two billion francs of subprime assets.
In a research note, Merrill Lynch analyst Derek De Vries, who rates the stock at "neutral," said the bank's large exposure to mortgage securities and leveraged loans may translate to further markdowns.
As of the end of 2007, Credit Suisse valued the leveraged loans at 93.7 cents on the dollar. Recent market data suggest they are worth about 90.5 cents on the dollar. It is likely to try to cut these holdings further by selling some during the current quarter, analysts said.
Mr. Dougan remained silent on the potential for further write-downs, but he conceded that the banking environment will remain difficult in the near term.
That has prompted Credit Suisse to search for more business in investment-banking areas that are still growing, such as equity derivatives.
Chief Financial Officer Renato Fassbind said private-banking clients have become risk-shy and that it was more difficult to find ways to invest their money. Still, he said the company is confident it will be able to tackle these difficulties.
