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Credit Suisse suspends traders after debt 'mismarking'

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  • Credit Suisse suspends traders after debt 'mismarking'

SWITZERLAND - Credit Cuisse Group has suspended traders responsible for some of its structured credit facility after the firm discovered positions were overpriced to the tune of $2.85bn (€1.93bn).

A statement issued by the Swiss firm said Credit Suisse's first quarter net income would see a writedown worth $1bn (€670m) after officials discovered in an internal review a series of "mismarking and pricing errors by a small number of traders in certain [asset-backed] positions" within its structured credit business, eventually worth an estimated $2.85bn.

In a conference call with analysts and the media, ceo Brady Dougan confirmed traders have been suspended while the matter is assessed, but said early indications are the "errors" were as a result of "tardiness in the diligence of updating marks" on mark-to-market pricing of debts, rather than because there is evidence of fraud.

He suggested the "late marks" are related more to the position of the markets within the first six weeks of the year for some CDO and ABS, and little to with mispricing by "a small number" of traders, but which do not include writedowns for commercial mortgage-backed securities.

The firm is investigating whether the 2007 final year results - revealed last week as generating CHF8.5bn (€5.3bn) in net income - could have been affected too. While the true position is only likely to be revealed now in March when its annual report is presented, Dougan told analysts "the initial review has not given us any indication of the need to restate" at this stage. (See earlier IPE story: Zurich and Credit Suisse profit as UBS loses)

In answering questions, Dougan also stressed "some of these issues came up last week but certainly [were not known] not at the time we were presenting earnings".

Wilson Irvine, head of risk at Credit Suisse, said it was "a very disappointing issue we are not happy about" because "we have not caught it as quickly as we would have liked", but added there was no wider review of risk management processes elsewhere in the company beyond normal risk analysis and processing.

Officials say they believe the firm will still remain profitable for the three months to the end of March 2008, even with this writedown, although officials acknowledge "the final determination of these reductions will depend on further results of our review and continuing market developments".

The trades in question, in part, relate to US2bn in subordinated debt notes due in 2018, with a coupon of 5.75% but in light of its discovery the firm has had to reprice its position to total fair value to "reflect significant adverse first quarter 2008 market developments".

The $2.85bn writedown and $1bn reduction in net income are also said to be an indicative estimate at this stage, as some of the loss relates bonus assumptions and tax assumptions which cannot be fully known until the end of the year.

Clients' assets were not involved in these mismarkings, said Dougan.

This latest development follows recent writedowns from rival investment house UBS, as well as revelations of potential trader fraud at Société Générale. (See earlier IPE story: Rogue trader losses SocGen €4.9bn)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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