(ZURICH) Credit Suisse said yesterday that third-quarter profit at its investment bank was all but wiped out by writedowns, leading to a 31 per cent fall in group net earnings to 1.3 billion Swiss francs (S$1.63 billion).

Investment banking income was hit by writedowns of over 2.2 billion Swiss francs in leveraged loan commitments, residential mortgages and collateralised debt obligations (CDOs). The division barely broke even.

The results, boosted at group level by a tax credit and revaluations of bond holdings, sent the bank’s share price lower.

Credit Suisse’s shares were 2.95 per cent down at 0940 GMT, when the DJ Stoxx European banking sector index was down 1.59 per cent.

Banks worldwide have taken charges totalling more than US$20 billion on holdings in mortgage-backed securities which have been hit by rising defaults in US sub-prime mortgages.

‘The extreme market conditions that characterised the third quarter affected many of our businesses,’ chief executive Brady Dougan said in a statement yesterday.

‘It is too early to predict when all of the affected markets will return to normal levels,’ he added.

Credit Suisse, which said it had started unwinding its exposure to sub-prime mortgages late last year, has emerged less damaged by the sub-prime market meltdown than many of its peers.

Earlier this week, its rival UBS reported a wider-than-expected loss for the third quarter and warned of more writedowns in the fourth quarter.

Last week, Merrill Lynch reported an unexpected US$8.4 billion in writedowns.

In a sign that market uncertainties were taking a toll on staff rewards, Credit Suisse said its compensation and benefits bill fell to 2.392 billion francs in the third quarter from 5.409 billion in the second three-month period of 2007.

But analysts said they were slightly disappointed that Credit Suisse had only just broken even in investment banking and fared slightly worse than expected in private banking. Some also pointed to weaker inflows of money into Credit Suisse’s wealth management unit compared with UBS.

Chief financial officer Renato Fassbind left open the possibility of Credit Suisse having to make further valuation changes.

He also declined to say how large the bank’s exposure was to CDOs (repackaged mortgage-backed loans), which have proved a major source of woes for its local rival UBS.

‘We are not disclosing a number for those (CDOs) but they are minimal compared to some of our peers, so we’re pretty comfortable,’ he told CNBC television. UBS earlier this week reported US$1.8 billion in exposures to CDOs.

Net new money in wealth management was 9.7 billion Swiss francs, the bank said, down from 10.9 billion francs in the third quarter of 2006 and compared with an average forecast by analysts of 10.7 billion francs. The annualised gain in net new money inflows in the third quarter was 4.5 per cent, below a target of 6 per cent. — Reuters

Source: Business Times