Thursday, August 21, 2008

More Drama From Credit Suisse?

If Credit Suisse Group’s goal was to report the smallest write-downs on Wall Street for its second quarter 2008, it succeed. If the goal was to post the most profits on the Street, the bank failed miserably. Profits dropped 62% from a year earlier.

Chief Executive Officer Brady Doungan cut leveraged loans and real estate assets by 68 percent over the past nine months to limit second-quarter writedowns to 22 million francs and said he will continue to manage the bank “conservatively.”

Where the image-conscious bank shined was on its write-downs, which the bank deemed to be “immaterial”.

In the latest quarter, Credit Suisse said it had combined net writedowns of only 22 million francs ($21.3 million) in the leveraged finance and structured products businesses, which it said was so low as to be “immaterial.”

Then, just to push the point that things are getting back to normal, Credit Suisse is winding down its provisions for credit losses. The bank’s provision for credit losses for the second quarter are CHF45M, down from CHF151M in the first quarter:

YoY: Up from CHF (20) million to CHF 45 million The increase was due primarily to higher provisions relating to a guarantee provided in a prior year to a third-party bank by Investment Banking. QoQ: Down 70% from CHF 151 million to CHF 45 million The decrease was due primarily to lower provisions in 2Q08 relating to the third-party bank guarantee.

It is in those “third-party bank guarantee,” i.e. credit spreads in own debt, where evil problems lurked for investors in the first quarter. The bank took write-downs on $2.8B in “mispriced” assets. We want to know if Credit Suisse is on the Up and Up, or if they will have to fess up as they did with those mispriced assets in the first quarter. According to the Credit Suisse’s 10-Q, the bank carried CHF92.26B ($87.93B) worth of Level 3 assets at the end of 2007. This had increased to CHF114.3B ($108.913 B) as of the end of June 2008.

Maybe the regulatory agencies should look into how much of the financial media Credit Suisse owns. Even after its first quarter shenanigans, someone at the Wall Street Journal couldn’t help rehash the old story.

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