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Salam, Rudy Credit Suisse Profit Falls 31% After Credit Swings (Update1) By Jacob Greber http://www.bloomberg.com/apps/data?pid=avimage&iid=iA.4YGlNcqQ0 <http://www.bloomberg.com/apps/news?pid=photos&sid=auLrl64egZYg> Enlarge Image/Details Nov. 1 (Bloomberg) -- Credit Suisse Group, Switzerland's second-largest bank, posted the first profit decline in a year after writing down $1.9 billion in fixed-income securities and leveraged loans linked to the fallout from the U.S. subprime mortgage market collapse. Net income in the third quarter fell to 1.3 billion Swiss francs ($1.1 billion) from 1.89 billion francs a year earlier, Zurich-based Credit Suisse said in an e-mailed statement today. Profit beat the 1.28 billion franc median estimate of eight analysts surveyed by Bloomberg, buoyed by earnings from managing money for wealthy clients. Chief Executive Officer Brady Dougan, 48, six months after taking over from Oswald Gruebel, said earnings were dented by ``extreme market conditions.'' Surging U.S. home loan defaults rippled through credit markets in the quarter, forcing UBS AG, the biggest Swiss bank, to write down $4.4 billion in fixed- income securities and post its first quarterly loss since 2002. ``The good news with Credit Suisse is the private banking side,'' said Justin Urquhart Stewart, who helps oversee about $3 billion as director of 7 Investment Management in London. Credit Suisse has gained about 4 percent in Zurich trading in the last 12 months, while UBS, Europe's biggest bank by assets, fell 17 percent. Deutsche Bank AG, Germany's biggest bank, has declined about 7 percent in Frankfurt. `Pull-Back' Profit from continuing operations at Credit Suisse fell 11 percent to 1.3 billion francs from 1.47 billion francs a year ago. On Oct. 1, the bank forecast profit of between 1.04 billion francs and 1.56 billion francs. The bank sold its Winterthur insurance unit to Axa SA in the fourth quarter last year. Pretax earnings at the securities unit slumped to 6 million francs from 758 million francs a year earlier, Credit Suisse said. At the main wealth-management unit, profit gained by 32 percent to 900 million francs. Earnings at the Swiss consumer bank rose 15 percent to 389 million francs, while the asset- management unit posted an 85 percent decline to 45 million francs from 158 million francs a year earlier. ``The extreme market conditions that characterized the third quarter affected many of our businesses,'' Dougan said in today's statement. ``We are seeing encouraging signs that activity in the credit markets is increasing although it is too early to predict when all of the affected markets will return to more normal levels.'' Fixed-Income, Equities Credit Suisse said its structured-products business, including residential and commercial mortgages and collateralized debt obligations, recorded a cut in valuations of 1.1 billion francs, net of fees and hedges. The bank also wrote down 1.1 billion francs on its leveraged loan commitments. The bank had a 300 million-franc loss from stock trading with its own money. UBS CEO Marcel Rohner posted a net loss of 830 million francs for the third quarter this week and said it is unlikely the securities unit will return to profit this year. The bank took a writedown of $260 million on about $12.9 billion of loans to fund LBOs. Deutsche Bank said yesterday profit rose 31 percent as tax credits and gains from asset sales outweighed the first loss at the securities unit in five years. The bank had 2.16 billion euros ($3.1 billion) in writedowns and trading losses. Merrill Lynch & Co. reported the biggest loss in its 93- year history last week on $8.4 billion of writedowns, leading to the ouster of CEO Stan O'Neal. `Cautious' Credit Suisse has said it foresaw increasing defaults on housing loans to less creditworthy borrowers in the U.S. The subprime business accounted for about 2 percent of investment- banking revenue, or about 1 percent of group revenue, Chief Financial Officer Renato Fassbind said Aug. 2. ``We anticipated these negative developments in subprime and have been extremely cautious since the second quarter of 2006,'' said Fassbind. The company said a month ago it would cut about 320 jobs at the securities unit. Any further declines in profit at the investment bank, headed by Paul Calello, increase Credit Suisse's reliance on fees from wealth and asset management. Rising asset prices boosted revenue this year at the main private-banking unit which typically accounts for about 20 percent of revenue. ``Credit Suisse is very good in a number of the businesses we expect will be more difficult in 2008,'' including leveraged finance, Merrill analysts Stuart Graham and Derek de Vries in London wrote in a note to investors last week. Fixed income accounted for half of investment banking revenue last year. The Morgan Stanley Capital International World Index, a gauge of 23 developed markets, rose for the eighth quarter in nine in the three months through September. Credit Suisse oversaw 1.63 trillion francs at the end of June, up almost 10 percent from the end of 2006. To contact the reporter of this story: Jacob Greber in Zurich at [EMAIL PROTECTED] Last Updated: November 1, 2007 02:38 EDT
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