Swiss Bank Announces Loss of $2.85bn

Swiss investment bank, Credit Suisse, announced on Tuesday that due to miscalculations on structured credit pricing, they had $2.85bn (€1.93bn) of losses.

Up to this point, Credit Suisse had seemed one of the least affected banks from the recent credit market collapse, and further, had been the cause of multi-billion dollar losses for many rival banks.

According to a statement released by the bank, though revenues stood to take a beating for the first quarter, profits would still be made in the time frame. The banks reported earnings of SFr8.55bn ($7.8bn, €5.3bn) for 2007 are also under review.

At mid-morning trade in Zurich, Credit Suisse were down to SFr52.05, which is a loss of SFr4.70, or 8.3% for the day, which is in turn forcing other European bank stocks lower.

With Credit Suisse reporting their earnings just last week, analysts have stated that they are baffled as to how the bank could not have picked up the errors before the release of revenue figures.

A release has been issued by the bank stating that the losses are due to incorrect prices for asset-backed securities in the structured credit side of the bank and poor market performance in the first quarter. The bank also said the discovery of the losses is because of ongoing control processes which are now being continued throughout the entirety of the bank.

Sources have stated that the bank is coming forward about the loss now because of a $2bn 10-year bond which is about to close.

The statement also included that the final results of the reductions would be based on a bank-wide review and market developments. The explanation of the reductions was that mismarkings and pricing errors had occurred by a small number of traders in the bank’s credit trading business and that the internal review would continue.

At this stage, Credit Suisse has handed down multiple suspensions to traders connected to the over-pricing which has induced the writedown.

According to news sources, the traders at the bottom of the issue, are based in a London group which is led by the global head of synthetic collateralised debt obligations, Kareem Serageldin.

The teams responsibilities lay in pooling groups of credit derivatives to create bespoken slices of risk for investors, which involved structuring and trading synthetic CDOs.

According to a spokesperson for Credit Suisse, a small group of traders are currently facing investigation for over-valuing asset-backed securities on their balance sheets. At this stage the bank cannot release confirmed numbers of those being investigated.

The spokesperson could not confirm or deny that the London group of traders had been suspended.

In the past few years, Credit Suisse has been led by CEO Brady Dougan and has attempted to counter the bank’s reputation for mixed revenues due to their noted and disproportionate risk taking.

Credit Suisse had been looking pretty good up to this point, with rival UBS taking extremely heavy losses as a result of the credit crisis, and was set to become one of the most trusted investment banks in Europe.

This new loss comes on the back of the €4.9bn loss for Société Générale which was due to unauthorised trading by a junior employee, Jérôme Kerviel, and analysts are stating that this will reinvigorate the climate of distrust regarding quality control in investment banks.

Earlier this month, Qatar Investment Authority purchased a share of less than 3% in Credit Suisse in a bid to invest $15bn into the economic sector.

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