Credit Suisse suffers less than rivals

Wilson Ervin, Credit Suisse chief risk officer, explaining the bank's latest figures on Tuesday pd

Credit Suisse profits slumped 25 per cent in 2007 but the bank managed to avoid the worst excesses of the subprime mortgage crisis to end the year in the black.

Net profits of SFr8.55 billion ($7.76 billion) were down from the SFr11.33 posted in 2006. However, the group managed to trim its writedowns to just over SFr2 billion despite a poor fourth quarter.

The results contrasted starkly with those of rival bank UBS. It is expected to report a SFr4.4 billion loss in 2007 after incurring more than SFr20 billion in writedowns relating to the subprime woes in the United States.

Credit Suisse Chief Executive Brady Dougan said the results were “achieved in an extremely challenging environment”.

“Our integrated business model, global reach, strong risk management capabilities and capital position proved important competitive advantages,” he added.

Credit Suisse reported an additional SFr1.3 billion writedown during the last three months of 2007. This resulted in a 72 per cent drop in net profit to SFr1.33 billion compared with the same period in 2006.

However, the bank drastically trimmed November’s separate SFr2.2 billion writedown thanks to hedging positions to end the year down SFr2.01 billion.

Cautious approach

Credit Suisse was at pains to point out how a cautious approach had ensured the bank weathered the subprime storm better than its rivals.

To put its losses in perspective, it has been estimated that global banking writedowns could reach up to $400 billion – of which only around $120 billion have so far been announced.

Dougan revealed that the decision to get out of the risky area had been largely taken in December of 2006 when the bank reduced its exposure by 40 per cent.

“It’s been a very odd crisis in the sense that there have been storms and periods of blue skies. Some people internally were saying that we were missing an opportunity, this is crazy. But we said we don’t think this is the kind of business with the kind of risk profile that we want to be in,” he said on Tuesday.

Dougan also spoke about the bank’s bonus payment system that defers part of the payment to traders for two years. This held back portion could be lost if the trader incurs losses in the two year period.

Bonuses have been widely criticised for creating a culture of risk taking for short term gain.

“That’s something [deferred bonuses] we think gives people a much longer term horizon. We are trying to come up with ways to align people with shareholders,” Dougan said.

The bank also announced that it plans to hire 1,000 new client relationship managers by 2010, mainly in the emerging markets in Asia, the Middle East and Latin America. It hinted that many of these new staff, who would actively manage the assets of wealthy people, could jump ship from rival banks.

The bank proposed raising its dividend to SFr2.50 a share – compared with SFr2.24 plus a par value reduction last year – and said it is already more than halfway through an SFr8 billion share buyback, which it sped up last year.

swissinfo, Matthew Allen in Zurich

In brief

The Credit Suisse Group is the second-largest bank in Switzerland after UBS.

The two banks control about half of the entire banking activity in Switzerland, representing some 10 per cent of GDP.

Credit Suisse is active in 50 countries and employs 47,000 people.

Credit Suisse 2007 results in detail

Net profit of SFr8.5 billion (SFr11.33 billion 2006 – a figure that included some SFr3 billion in now discontinued operations such as the Winterthur insurance arm).

Private banking, which comprises the wealth management and corporate and retail banking businesses, reported record income from continuing operations before taxes of SFr5.5 billion for 2007, an increase of 19 per cent on 2006.

Investment banking reported income from continuing operations before taxes of SFr4.8 billion for the full year 2007, a decrease of 19 per cent compared with 2006.

Asset management reported a 30% decrease in income of SFr354 million in the full year, dragged down by a pre-tax loss of SFr247 million in the fourth quarter. Assets under management amounted to SFr691.3 billion – a 3.2% increase from 2006.

Net new money SFr50.2bn (SFr50.5bn in 2006).