Thursday March 20, 12:56 PM
Swiss bank Credit Suisse warns no profits expected in first quarter
ZURICH (AFP) - Swiss banking giant Credit Suisse issued a profit warning on Thursday because of its exposure to the US subprime loan crisis, even as the finance minister said Swiss banks caught by the credit squeeze should not expect state help.
"In light of the difficult market conditions in March, at this time, Credit Suisse believes it is unlikely to be profitable in the first quarter," the bank which is the second-biggest in Switzerland said.
It (Frankfurt: A0MLX5 - news) also revised figures released last month, cutting its 2007 net profit to 7.76 billion Swiss francs (five billion euros, 7.76 billion dollars) from the February figure of 8.55 billion.
The news sank the bank's stock price - last trading down 9.9 percent at 46.70 Swiss francs -- and weighed down on the banking sector across Europe.
It also raised further questions about the health of the Swiss banking sector, coming on the heels of massive subprime-related writedowns of 18.4 billion dollars posted by the country's largest bank UBS (Virt-X: UBSN.VX - news) for 2007.
UBS had to turn to sovereign wealth fund Government of Singapore Investment Corp and an unnamed Middle Eastern investor to prop up its capital base.
Howover, in an interview published Thursday in Swiss newspaper Tages Anzeiger, finance minister Hans-Rudolf Merz said the state will not bail out banks which are in trouble.
"We should let the market take its course," he said.
However, if the situation worsens and threatens the stability of the entire financial market here, the relavent authorities will snap into action, he said.
While expectations were growing that the banking sector has turned a corner following better-than-expected results from US investment bank Goldman Sachs (NYSE: GS - news) and Lehman Brothers (NYSE: LEH - news) , Credit Suisse's latest bombshell dampened these hopes.
Credit Suisse had been one of the banks less severely hit so far by the subprime crisis. But questions about its earlier positive figures mounted after the bank posted large writedowns barely a week after announcing its full-year results in February.
"I don't think that many people expected Credit Suisse to publish a profit for the first quarter," said Dirk Becker, Landsbanki Kepler analyst.
In February, the bank had sought to reassure the market that it had largely weathered the collapse in the US property market, saying that it expected to be profitable in the first quarter.
But it now expects to swing to its first quarterly loss in four years.
"That is a situation that we cannot tolerate," said chief executive Brady Dougan in a press conference by telephone.
In 2007, the bank's writedowns reached 3.26 billion Swiss francs, while that for the first quarter this year is now at 1.68 billion Swiss francs.
The bank (TBHS - news) also confirmed that price fixing errors discovered in its structured credit business were in part due to "intentional misconduct by a small number of traders" who had since been suspended or dismissed.
"Certain individuals did not follow procedures," said Dougan.
Controls put in place to prevent or detect this activity had proved ineffective, added the bank.
A source said however, that this should not be seen as in anyway similar to the massive rogue trading scandal at French bank Societe Generale (Paris: FR0000130809 - news) which in January had to take a hit of 4.9 billion euros as a result.
The source added that there were no indications of intentions by the individuals to cheat the bank or to profit from the action.
Brady Dougan said the incident was "unacceptable and does not meet the standards" required by the bank.
"Credit Suisse continues to be well positioned through the challenging and volatile markets that have existed since the middle of 2007 ... Our private banking business continues to perform well," Dougan added.
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