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Credit Suisse bails out Winterthur - again

Credit Suisse CEO Lukas Muhlemann championed the acquisition of Winterthur in 1997

(Keystone)

Credit Suisse has announced it is to inject a further SFr2 billion ($1.35 billion) to prop up its ailing Winterthur insurance business.

Switzerland's second-largest financial group also said it expected a "significant net loss" at its loss-making subsidiary to hit its third-quarter figures.

The latest cash injection comes just three months after Credit Suisse pumped in SFr1.7 billion to shore up flagging capital at Winterthur.

Analysts say the move was widely expected, and is unlikely to boost confidence in Winterthur, which like most insurers has seen its reserves tumble on the back of falling markets.

"The markets were anticipating this - Credit Suisse is having to prop up the insurance arm...," Barclays banking analyst, David Hussey, told swissinfo.

He added that if stock markets don't improve "you may have to see more capital moved across and Credit Suisse could find itself in a position where it didn't have enough".

Winterthur, which was bought in 1997 as a potential money-maker, has so far proved to be a millstone round the banking giant's neck.

It formed the heart of the "Allfinanz" or one-stop shop banking/insurance strategy championed by chairman and chief executive, Lukas Mühlemann, who is stepping down at the end of the year.

Credit Suisse says it wants to stick with Winterthur for now, but insiders expect it to offload the business once it has been adequately recapitalised and markets have improved.

"CS would have a real problem if it tried to sell Winterthur at the moment," said Hussey. "But give it six months [and] a recovery in the market, and they could certainly float the idea of selling this business."

Share price down

Winterthur's problems have added to recent pressure on Credit Suisse' shares, which have fallen by more than 50 per cent this year.

"Further measures to improve Winterthur's solvency capital are planned in line with market developments," said Credit Suisse in a statement. "Credit Suisse Group remains adequately capitalised."

The group said steps had been taken to drastically reduce Winterthur's equity exposure to reduce the impact of volatile market swings on its solvency capital.

Wednesday's announcement is a further blow for Credit Suisse which last month reported a heavy second-quarter loss of SFr579 million.

The result was in strong contrast to its main rival UBS, which reported a second-quarter net profit of SFR1.331 billion.

A fortnight ago, it was announced that Mühlemann would be stepping down as CEO at the end of the year after five years at the helm.

That decision came only three months after Mühlemann gave up his double mandate, resigning as the group's chairman.

Analysts have even speculated that Credit Suisse could find itself the target for a takeover.

swissinfo with agencies

Credit Suisse Winterthur

Credit Suisse bought Winterthur in 1997.
The group pumped SFr1.7 billion into its insurance subsidiary in June this year.
Credit Suisse's share price has fallen by more than 50 per cent this year.

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