Mark Down Could Be Caused By Acquiescence

According to industry sources, the possible reason for the recent mark-down by Credit Suisse is the over acquiescence of risk managers to successful traders.

After the announcement of the internal review by Credit Suisse to establish exactly what has caused the mark-down, pressure has been building for the results to be made public as to why a few of the bank’s traders failed to re-evaluate prices on their structured credit to reflect movements in the markets for the past two months. It was only due to a random review of figures that the discrepancies where picked up, however this was after losses had had five days to build up.

Many in the investment banking community have expressed bewilderment as to how the mispricing could continue for longer than a day at the most. One possible explanation has been suggested that the controllers whose duty it is to verify figures on a daily basis did not properly evaluate the figures.

As with most investment banks, Credit Suisse requires their traders to value the figures on their balance sheets daily. However these figures are only estimates, and it is the job of the controllers to verify, and if necessary alter, the numbers listed on the banks balance books.

According to insiders, there is an apprehensive relationship between traders and controllers, and in some cases where the traders are known for being particularly successful the controllers are loath to challenge their estimates.

Credit Suisse is yet to announce whether the discrepancies are the result of deliberate misleading or accidentally incorrect.

The investment banking community has disregarded the idea that the issues at Credit Suisse arose from complications with valuing mildly traded complex credit securities, like collateralised debt obligations and mortgage backed securities, as Credit Suisse stated on Tuesday that the capital was illiquid yet capable of being valued in consideration of market movements.

Many bankers from rival businesses have weighed in on the issue, stating they found the whole issue difficult to understand, especially how the mispricing could take five days to be noticed and surprise that Credit Suisse didn’t have back-up systems in place to spot the issue within the first 24 hours of it occurring.

This new debacle isn’t any good for any of the investment banks, and other bankers are making it known they take no delight in seeing their competitors suffering, especially because it raises issues of trust in the banking process all over again after the €4.9bn ($7.2bn) alleged fraud at investment bank Société Générale.

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