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10 December 2023

Credit Suisse suspends traders linked to $2.85 billion overvaluation of assets

By Agencies

Credit Suisse says it has suspended some of its traders in connection with the overvaluation of assets by US$2.85 billion (Dh10bn).


A spokesman for Switzerland’s second largest bank said on Tuesday that a small number of traders were being investigated for overvaluing asset-backed securities on its balance sheet.


“I can’t tell you exactly how many, but a small number, a handful,” Credit Suisse spokesman Marc Dosch told The Associated Press.


An internal review found “mismarkings and pricing errors” in the bank’s structured credit trading business, which has also been affected by the sub-prime mortgage crisis and the subsequent downturn in world markets, Credit Suisse said on Tuesday.


Shares in the bank dropped 9.2 per cent to CHF51.55 on the Zurich exchange following the announcement that the misvaluation will reduce earnings by US$1 billion in the first quarter. The bank said it expects to remain profitable in the first quarter of the year even with the writedown.


Credit Suisse last week announced a CHF2.07 billion (writedown for sub-prime related assets, but still posted a fourth-quarter net profit of CHF1.33 billion.


Rival UBS AG, the largest Swiss bank, has been hit much harder. UBS posted a loss of more than US$11 billion for the fourth quarter and its first full-year net loss in a decade after writing down CHF15.6 billion in the mortgage-related investments.


Analysts said the announcement by Credit Suisse that some of its assets had been overpriced raised questions about the bank’s internal oversight.


“Whilst we had received some assurance that the Credit Suisse balance sheet is not as laden with problem securities as UBS, this disclosure just raised the prospect that they may be simply bad at knowing what problems they do have,” Peter Thorne of independent brokerage Helvea SA said. “


The bank’s warning is the first tangible sign that the credit and sub-prime crisis will beset financial stocks well into this year. Many banks have been hit by the sub-prime crisis, but most have been mum about the effect on this year’s earnings.


Credit Suisse’s disclosure is part of an ongoing internal probe into how its traders marked the value of products such as commercial mortgage-backed securities, residential mortgage-backed securities, and collateralized debt obligations, or CDOs.


The review’s findings will be completed by mid-March, when Credit Suisse is scheduled to publish its annual report, a bank spokesman said. (AP)