Credit Suisse took a near £1 billion writedown yesterday as a result of the credit crunch, in a move that flattened its investment banking profits for the third quarter and sent group profits down by 11 per cent.

The value of shares in Credit Suisse fell by more than 4 per cent, down SwFr3 at SwFr64.69, as profits at the financial services giant fell to SwFr1.3 billion (£539 million) after tax for the three months to September 30. Analysts at Citigroup said that the numbers were “well below what consensus [forecasts] had assumed”.

Brady Dougan, the chief executive of Credit Suisse, characterised market conditions in the third quarter as “extreme”, although he said there were signs that the credit markets had begun to improve in the fourth quarter. He said: “We are seeing encouraging signs that activity in the credit markets is increasing, although it is too early to predict when all of the affected markets will return to more normal levels.”

Credit Suisse said that its investment bank was hit by the “dislocation” in the credit markets in the third quarter. Pretax profits at the division over the period fell to only SwFr6 million, compared with slightly more than SwFr2.5 billion the previous quarter.

BACKGROUND

• Elephant slumps in wake of crunch

• Heads on the block, investors call for change

• Credit crunch forces Delek to leave property deal

• US rate cut looks certain after new data

• Bank of America to axe 3,000 after 'our errors'

BACKGROUND

• More pain for private equity industry

• Russian state bank poised to boost liquidity

• House prices‘to stay flat for years’

• Will soaring oil pump up inflation?

• US bank slump goes on

Black clouds loom on horizon

For the first time in 15 years, I am seriously worried about the outlook for the economy, the housing market and sterling

Float on the job market

Don't believe the scary headlines. It's not the worst time to consider a career in banking

Related Links

• Credit Suisse sheds mortgage-backed securities jobs

The bank marked down SwFr1.1 billion of structured products, including residential mortgages and packages of commercial securities known as collateralised debt obligations. A further SwFr1.1 billion of the writedowns were against its leveraged loan commitments.

Credit Suisse also suffered a SwFr300 million proprietary trading loss as a result of “black box” quantitative trading strategies in equities.

Citigroup analysts said that the investment banking writedowns were “not explicitly flagged before, although probably expected”.

Stefan-Michael Stalmann, a Dresdner Kleinwort investment banking analyst, said: “The results are not bad relative to peers, but investors who had thought Credit Suisse could ‘walk on water’ [in the third quarter] may be disappointed.”

In asset management, markdowns on positions held by the unit led to a SwFr113 million drop in pretax profits to only SwFr45 million for the third quarter. However, Credit Suisse balanced the losses with a strong performance from the private bank, up 26 per cent to SwFr1.3 billion; the wealth manager, up 32 per cent to SwFr900 million; and the corporate and retail bank, about 15 per cent higher at SwFr389 million.

It said that, despite the turmoil, it had managed to generate record net profits of SwFr7.2 billion over the first nine months of the year.

Mr Dougan said: “Our global diversification and balanced business mix helped us to mitigate the impact on our overall performance, maintain solid profitability and deliver a record result.”

The third-quarter numbers from the Swiss bank cap a reporting season at international investment banks that has been pockmarked with red ink.

This week Deutsche Bank took a €2.16 billion (£1.5 billion) writedown, hurt by losses on leveraged loans and residential mortgage-backed securities. This pushed its investment banking division into a pretax quarterly loss of €179 million. Deutsche Bank’s shares rose, however, as the loss was less than the market had predicted.

UBS, which also was hit by writedowns at its investment bank, reported a net pretax loss of SwFr726 million, compared with a SwFr2.814 billion profit in the same period last year.

Getting ready for another round of redundancies

—Credit Suisse’s 7,000 investment banking staff in Britain will be braced for lower bonuses after the credit market turmoil reduced divisional profits to SwFr6 million

—London-based Credit Suisse investment bankers, led since May by Paul Calello, will not be surprised if fresh redundancies are pending. Credit Suisse announced in September that it planned to trim 150 staff, with the cuts expected to take place mainly in London and New York

—In a worldwide Credit Suisse staff of 45,000, the investment bank employs about 20,000 people

—Credit Suisse paved the way for lower payouts by noting that it had reduced costs. Staffing expenses fell 78 per cent in the third quarter, compared with the previous three months, with compensation payments accounting for 40 per cent of revenues. This is relatively low for investment banks, which can easily spend the majority of their revenues on pay and perks

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts