C.Suisse wary on Q4, investment bank disappoints

* Cautious on Q4 after poor investment bank performance

* Shares down 8 pct

* Trims exposure to toxic assets

(Adds shares, analysts' quote, more details)

By Lisa Jucca

ZURICH (Reuters) - Swiss bank Credit Suisse trimmed exposure to illiquid assets, but a whopping 1.7 billion Swiss franc trading loss in the third quarter and a warning the fourth quarter would be tough dragged its shares down 8 percent.

Credit Suisse Group AG (CSGN.VX) confirmed on Thursday its 1.3 billion franc third-quarter loss, which it announced last week along with 10 billion francs of fresh capital, but gave more details on risk exposure and investment banking.

The bank said it had cut exposures to leveraged finance by 17 percent to 11.9 billion francs ($10.20 billion), a slower reduction than in previous quarters, while exposure to commercial mortgage-backed securities (CMBS) fell by 15 percent to 12.8 billion francs.

Credit Suisse has fared better than its Swiss peer UBS (UBSN.VX) and other rivals in the crisis and has so far declined state help. But its shares fell more than 8 percent to 42.68 francs at 1037 GMT as investors feared investment banking, which was hit by a pretax loss of 3.2 billion francs, would continue to struggle.

"Credit Suisse has bet that the market will recover and they are well-placed to benefit in an upswing," said Panagiotis Spiliopoulos, a senior analyst with Vontobel. "But if the market continues like that, there is a high probability we will see a very weak result again in the fourth quarter."

INVESTMENT BANK STRUGGLES

The loss followed 2.4 billion francs of writedowns and a poor performance at Credit Suisse's key investment banking division, although its profitable private banking business continued to see strong inflows.

The bank also saw billions of francs drained out of its asset management division.

"We expect the market to remain very challenging and we are cautious with regard to the outlook for the fourth quarter," Chief Executive Brady Dougan said in a statement.

He said the third-quarter performance was "clearly disappointing," and management pay this year would reflect that.

Credit Suisse said it would continue to reduce exposure to illiquid assets and other holdings, for instance on convertible bonds, but analysts said this would get more difficult.

"The pace of risk reduction has slowed down. The further you go the tougher it gets," said Andreas Venditti, a bank analyst with ZKB. "There will be more writedowns on these positions as the spreads are widening."

Yet last week's capital injection has boosted Credit Suisse's Tier 1 ratio, a measure of financial strength, to 13.7 percent, making it one of the world's best-capitalised banks.

Although Credit Suisse shares are down 32 percent since the start of the year, the bank has outperformed the DJ Stoxx index of European bank shares .SX7P, which is down about 50 percent.

For the full statement click on [CSGN.VX-CNR]

(Editing by Hans Peters and Quentin Bryar)