Credit Suisse Suspends Asset Traders
Credit Suisse says it has suspended some of its traders in connection with the overvaluation of assets by $2.85 billion.
A spokesman for Switzerland's second largest bank said 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 subprime mortgage crisis and the subsequent downturn in world markets, Credit Suisse said Tuesday.
Shares in the bank dropped 9.2 percent to 51.55 Swiss francs ($47.21) on the Zurich exchange following the announcement that the misvaluation will reduce earnings by $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 2.07 billion Swiss franc ($1.88 billion) writedown for subprime-related assets, but still posted a fourth-quarter net profit of 1.33 billion francs ($1.2 billion).
Rival UBS AG, the largest Swiss bank, has been hit much harder. UBS posted a loss of more than $11 billion for the fourth quarter and its first full-year net loss in a decade after writing down 15.6 billion francs ($13.7 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 subprime crisis will beset financial stocks well into this year. Many banks have been hit by the subprime 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.
Meanwhile, in France, investigators were trying Tuesday to learn the identity - and confirm the existence - of a third person mentioned in the case of a trader blamed by French bank Societe Generale SA for more than $7 billion in losses.
Kerviel has said he was working alone but that his bosses at Societe Generale must have been aware of his massive risk-taking, and turned a blind eye as long as he was making money for the bank. Investigators are searching for others who could have known about, or participated in, what the bank says was Kerviel's unauthorized activity.
They have questioned Bakir, an employee of Newedge, a 50-50 joint venture between Societe Generale and Calyon bank, through which Kerviel passed some of his trades.
According to Kerviel's exchanges with Bakir via internal messaging on a financial information terminal, Kerviel said he was in contact with Mat, a London-based broker, who covered some of his positions, Montagne said.
Le Parisien newspaper reported Tuesday that initial findings suggest Mat never existed, and that Kerviel invented him to justify some of his operations.
"We haven't found him for the moment," Montagne said. "It's too soon to say he's a imaginary accomplice because investigations are not finished."
Christophe Reille, a spokesman for Kerviel, did not return a message on his cell phone.
Kerviel was sent to jail by a French court earlier this month on concerns that if left free he could have contacted possible accomplices. His lawyers have lodged an appeal for his release.
He is being held on preliminary charges of breach of trust, forgery and unauthorized computer activity. If tried and convicted on those charges, he faces up to three years in prison and hefty fines. Such charges mean judges have decided that further investigation is needed.