Credit Suisse Ravished by Rogue Traders

Credit Suisse Sees First-Quarter Loss After Writedown
By Elena Logutenkova and Warren Giles

March 20 (Bloomberg) -- Credit Suisse Group, Switzerland's second-largest bank, probably will post its first quarterly loss since 2003 after writing down debt securities that were deliberately mispriced by traders.

Credit Suisse fell as much as 11 percent in Swiss trading after the bank said it will take $2.65 billion of writedowns spread over the fourth quarter and first three months of 2008. The markdowns and ``difficult'' market conditions in March may lead to a first-quarter loss, the Zurich-based company said.

An internal review found that the pricing errors, first announced last month, were made intentionally ``by a small number'' of traders, who have since been fired or suspended. The episode is the biggest setback for Chief Executive Officer Brady Dougan since he took over from Oswald Gruebel in May after heading the investment banking unit for three years.

``This incident is unacceptable,'' Dougan, 48, said in the statement. ``We are taking strong action to remediate and move forward.''

Credit Suisse fell 4.62 francs, or 8.9 percent, to 47.18 francs by 10:30 a.m., bringing the drop this year to 31 percent.

The markdowns led the bank to restate fourth-quarter net income lower by 789 million francs ($788 million) to 540 million francs. Profit for 2007 declined to 7.76 billion francs.

The announcement of writedowns as a result of pricing errors came as a surprise last month, just a week after the bank said its risk management systems helped it sidestep the worst of the U.S. subprime mortgage market crash in 2007....

The mispricing was limited to traders and didn't involve managers or controllers, Dougan said on a conference call today. About half of the 1.18 billion-franc writedown on these trading positions in the fourth quarter was attributed to incorrect pricing, he said.

Credit Suisse said it was profitable through the end of February, though will probably have a loss for the quarter because of worsening market conditions this month. The world's biggest financial firms have fired more than 30,000 workers in the last seven months and reported at least $195 billion in writedowns and losses.

``March has been a very difficult month,'' Dougan said. ``Trading results have been very difficult given the extreme volatility in the markets.''

Dougan, a native of the U.S., earned 22.3 million francs last year, the bank said in its annual report today, publishing the CEO's salary for the first time. Dougan told reporters on the conference call that his compensation declined 40 percent last year. Chairman Walter Kielholz took a pay cut of 8.7 percent to 14.6 million francs in 2007.

To contact the reporter on this story: Warren Giles in Geneva at giles@bloomberg.netElena Logutenkova in Zurich at elogutenkova@bloomberg.net
Last Updated: March 20, 2008 05:57 EDT