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CS announces record loss

Credit Suisse is going through gloomy times Keystone

The Credit Suisse Group said on Tuesday it expected to make a net loss in 2002 of SFr3.4 billion ($2.47 billion).

This content was published on January 21, 2003 - 10:11

Switzerland's second-largest bank is facing difficulties in the United States. But its Winterthur insurance arm has finally returned to profit.

Analysts said the worst was thought to be over for the embattled group, which says it expects to turn a profit this year.

CS reported it was putting aside an extra SFr702 million for legal exposure in the United States at its investment bank, Credit Suisse First Boston.

The bank said it had decided to take the charge to cover CSFB's private litigation involving research analyst independence, certain IPO allocation practices, Enron and other related litigation.

A statement said this was in addition to the charge of SFr234 million for an earlier agreement in principle with various United States regulators involving analyst independence and the allocation of IPO shares to executive officers.

Fourth quarter loss of SFr1 billion

CS said it expected to post a net loss of about SFr1 billion for the fourth quarter.

In November, CS announced a third-quarter loss of SFr2.1 billion, with its Winterthur insurance arm then acting as the main cash drain.

Analysts were predicting then that the worst was over. "Certainly the headline number is significantly worse than anybody had expected. Two and a half billion dollars is much worse... but it is because of provisions," analyst Hilary Cook at Barclays told swissinfo.

Asked whether the provisions would be enough to cover the litigation, Cook said there was every reason to feel this would be the case.

"They have a pretty good idea of what the costs are going to be. It is clearly an enormous number but with luck, that's all over now and they can go forward," she added.

Commenting on the management prediction of a profit this year, Cook said there was "clearly an awful lot of uncertainty" in the markets.

"But I think one can be fairly confident that with the measures they taken, provided we don't get another downturn in equity markets, there must be a good chance of them being in profit this year," she said.

Winterthur returns to profit

CS reported on Tuesday that Winterthur, in which the capital base has been bolstered by SFr3.7 billion since last June, had returned to profit in the fourth quarter.

Credit Suisse Financial Services, which includes Winterthur, had fourth-quarter earnings of about SFr650 million and a full-year loss of about SFr220 million.

"While we expect challenging market conditions to continue throughout 2003, we are working to restore the group to profitability," co-chief executive officer John Mack said in the statement.

"We are pursuing a range of aggressive measures across the group to continue adapting our cost structure to this tough business environment," he added.

Cost-cutting

CS said it was continuing to cut costs after having already cut $3 billion at CSFB since late 2001. CSFB expects to report a net loss of about $790 million for the fourth quarter and a full-year net loss of some $1.2 billion.

The CS statement was cautious concerning the additional charge for the private litigation in the US, saying it represented management's current estimate after consultation with its counsel of the probable costs.

It said CSFB had "substantial defences" in the cases concerned.

However, given the difficulty in predicting the outcome of such litigation, Credit Suisse could not state with confidence what the timing or actual outcome would be.

swissinfo with agencies

Key facts

Credit Suisse has said it will post a record loss of SFr3.4 billion in 2002.
It has put aside an extra SFr702 million for legal exposure in the US at investment bank Credit Suisse First Boston.
CS reported that its Winterthur insurance business is back in the black in the fourth quarter.
Management has repeated that it will not sell CSFB.
Analysts say that CS has put all its bad news into 2002 results to ensure a clean slate this year.
Results for 2002 are due to be announced on February 25.

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