Credit Suisse Q3 Writedowns Hit Investment Bank

By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Credit Suisse (CSGN.VX) said third-quarter profit at its investment bank was all but wiped out by writedowns, leading to a 31 percent fall in group net earnings to 1.3 billion Swiss francs ($1.12 billion).

Investment banking income was hit by writedowns of over 2.2 billion Swiss francs ($1.9 billion) in leveraged loan commitments, residential mortgages and collateralised debt obligations. The division barely broke even.

The results, boosted at group level by a tax credit and revaluations of bond holdings, sent the bank's share price lower.

Credit Suisse's shares were 2.95 percent down at 0940 GMT, when the DJ Stoxx European banking sector index .SX7P was down 1.59 percent.

Banks worldwide have taken charges totaling more than $20 billion on holdings in mortgage-backed securities which have been hit by rising defaults in U.S. subprime mortgages -- loans extended to borrowers with patchy credit histories.

"The extreme market conditions that characterised the third quarter affected many of our businesses," Chief Executive Brady Dougan said in a statement on Thursday.

"It is too early to predict when all of the affected markets will return to normal levels," he added.

Credit Suisse, which said it had started unwinding its exposure to subprime mortgages late last year, has emerged less damaged by the subprime market meltdown than many of its peers.

Earlier this week CS's rival UBS (UBSN.VX) reported a wider than expected third-quarter loss, and warned of more writedowns in the fourth quarter. Last week Merrill Lynch MER.N reported an unexpected $8.4 billion in writedowns.

In a sign that market uncertainties were taking a toll on staff rewards, Credit Suisse said its compensation and benefits bill fell to 2.392 billion francs in the third quarter from 5.409 billion in the second three-month period of 2007.

But analysts said they were slightly disappointed that Credit Suisse had only just broken even in investment banking and fared sightly worse than expected in private banking.

"They made 1.3 billion francs (net profit) but the quality is weaker than I thought," said Andreas Venditti at ZKB. He said Credit Suisse benefitted from 622 million francs in valuation gains on its own debt and a tax credit of 315 million francs.

DISAPPOINTMENT

Others pointed to weaker inflows of money into Credit Suisse's wealth management unit compared with UBS.

"The market may be a bit disappointed," said David Williams at Fox Pitt-Kelton. "Clearly, break-even is a whole lot better than UBS which had a big loss in investment banking, but UBS had a fantastic number for net new money (in wealth management)."