Turn for The Worse

The earnings trend for Credit Suisse like the proverbial worm has very much turned and the outtlook going forward now is more grim than it was just a quarter ago. Credit Suisse booked a loss of $1.08 billion on write-downs of $2 billion, on catastrophic losses in it securities trading unit and realized what amounted to a run on its funds.

Credit Suisse Group reported a third quarter loss of $1.08 billion on Thursday as writedowns in its investment banking business more than wiped out profits elsewhere.
The bank’s second quarterly loss this year came as no surprise, following a warning last week that it would write down 2.4 billion francs ($2.06 billion) linked to bad investments. The investment banking unit swung to a loss of 3.26 billion francs ($2.79 billion) between July and September verus a profit of 6 billion francs in the previous quarter.

The carnage was actually worse, but was obscured b an accounting ruse with which Credit Suisse is well familiar, that of revaluing its own debt.

Analysts at Zuercher Kantonalbank noted that losses could have been higher had Credit Suisse not revalued its own debt to reflect a book profit of 1.9 billion francs ($1.63billion).

This coming from the bank that taught us all about revaluing its own debt in its fourth quarter 2007.

Just as Credit Suisse’s reputation for prudent risk management went up in a $2.85 billion puff of smoke this week, the bank’s seemingly impressive earnings are looking tenuous because of an obscure accounting rule.

The little-noticed financial accounting standard rule 159 allowed Credit Suisse to report $1.2 billion in gains on its 2007 income statement simply because of the widening of the credit spreads in own debt. Simply put, about 16 percent of the bank’s $7.43 billion in annual net income exists solely on paper.

That’s a cute little accounting trick to impress all the Poindexter’s in the business school, but it ain’t than no bills in the real world.

That’s a cute little accounting trick to impress all the Poindexter’s in business school, but it ain’t payin no bills in the real world which is why with revenues down, write downs up and provisions for credit losses of $263M (related to auction rate security buy back) Credit Suisse management took a little trip to the desert.

The Qatar Investment Company has increased its stake in the shares of Credit Suisse Group AG to 8.9 percent, while Saudi conglomerate Olayan has 3.6 percent, the Swiss bank said on Friday.

Credit Suisse had already announced the involvement of Qatar and Olayan in a 10 billion Swiss franc ($8.64 billion) capital hike last week, but did not detail their new stakes then.

In other assorted damages the banks third-quarter report (pg 100) shows its level 3 assets as CHF 113,933 million or $99,115.27 million, it’s both surprising and encouraging that it wasn’t booked as pure profit.