Credit Suisse reduces subprime writedowns

Credit Suisse trimmed full-year subprime write-downs to two billion Swiss francs (£932 million) but its stock fell as investors took fright at the bank's remaining exposure to the credit crisis.

The bank also reported a 49 per cent fall in fourth-quarter profit from continuing operations to 1.33 billion francs, slightly below analysts' expectations, as losses in its huge asset management business eroded results.

The average forecast for net profit in a poll of 16 analysts was 1.45 billion francs. Subprime write-downs in the fourth quarter were 1.26 billion francs, Credit Suisse said, though hedging earlier in the year had helped it lower its full-year charges for bad credits from an estimate of 2.2 billion francs made earlier.

"These write downs are towards the higher end of expectations, and importantly, there is still significant residual risk left on balance sheet," Goldman Sachs analysts said in a research note.

One of the few banks to avoid heavy subprime losses, Credit Suisse said total exposure to leveraged loans, commercial and residential mortgage-backed securities and structured products was 66.2 billion francs at the end of the year.

That was down from 100.7 billion francs at the end of the third quarter, according to Reuters calculations.

Credit Suisse has suffered limited fallout from the meltdown in US subprime mortgages which have set off write-downs running to more than $100 billion by banks globally.

The net write-downs on exposures were "among the lowest in our peer group," said Wilson Ervin, Credit Suisse's chief risk officer at a presentation for analysts and investors.

Bank UBS, Credit Suisse's chief rival, has taken charges of $18.4 billion on subprime exposures and Citigroup and Merrill Lynch have also taken huge charges.

Credit Suisse's Mr Ervin said some of the hedging positions that the bank had taken to protect its risky exposures had turned out to be profitable, allowing it to reduce overall write-downs for the year.

In the investment banking business, Credit Suisse had traded profitably in its fixed income business despite market conditions which have been badly hit by the subprime crisis, chief financial officer Renato Fassbind said.

But the bank slipped up in its asset management business where it lost 247 million francs in the fourth quarter due to writing down the value of a money market portfolio by 774 million francs after bringing it onto its own books.

The bank took the portfolio onto its balance sheet in the third quarter after a string of fund withdrawals by clients.

"Private banking was a very good performance but it is disappointing to see a loss in asset management," said Andreas Weese at UniCredit. "They said there was a high need for value adjustments."

"The net write-downs on exposures were not a negative surprise," said Weese. He said he had expected total write-downs of around one billion francs in the final quarter.

The bank's key investment banking division reported a steep fall in net income to 328 million francs in the final quarter.

Net new money in wealth management was far better than expected at 12 billion Swiss francs, up from 8.6 billion francs in the fourth quarter of 2006 and compared with an average forecast in a Reuters poll of eight billion francs.

The bank also reported a steep decline in its funded and unfunded exposures to leveraged finance to 36 billion francs from 58.6 billion francs.