Moody’s announced that the 2007 earnings release by Credit Suisse has not led to any change in the ratings of Credit Suisse Group or its subsidiaries (Aa1 debt and deposit ratings and B Financial Strength Rating of Credit Suisse, the main banking entity, and Aa2 debt and deposit ratings of Credit Suisse Group). The rating outlooks also remain stable.
Credit Suisse announced net income of CHF8.5 bln in 2007 (down 25% on 2006) and net income of CHF1.3 bln in Q407 (up 2% on Q307) and net writedowns of CHF2.01 bln in 2007. Given the widespread turmoil created by the dislocation in the credit markets which has led to significant losses at some firms, Moody’s considers that this result shows that Credit Suisse is well positioned relative to peers and remains well placed within its rating category.
Credit Suisse’s net writedowns were at the lower end of writedowns announced by global investment banks. The bank still has large exposures which could lead to further writedowns in the year ahead, and a range of hedges which could lead to gains and losses depending on their efficacy.
However, Moody’s views positively that despite being a major underwriter of leveraged loans and Commercial Mortgage Backed Securities (CMBS), the bank has been able to reduce its exposures significantly in these areas.
Exposures to monolines are limited, liquidity remains strong, and the bank continues to benefit from well-diversified earning streams across global private banking, corporate and retail banking in
Credit Suisse announced total net writedowns in the investment banking division for 2007 of CHF2.01 bln (of which CHF 1.26 bln relates to Q407). This comprised net writedowns of CHF 231 mln on leveraged loans in Q407 (CHF835 mln for full year 2007); CHF384 mln for CMBS (CHF554 mln for full year 2007); CHF480 mln for residential mortgages (CHF513 mln for full year 2007) and CHF164 mln for CDO trading (CHF108 mln for full year 2007). The bank also reported a fair value gain of CHF489 mln in Q407 on its own debt.
One area where Credit Suisse has experienced greater stress than some peers was in needing to purchase back structured securities from money market funds which led to valuation reductions of CHF774 mlnand a pre-tax loss of CHF247 mln in asset management in Q407.
Strong capital ratios continue to underpin the ratings of Credit Suisse.
The Group’s Tier 1 ratio at the end of Q407 declined to 11.4% (from 12% at end of Q307) following an increase in risk weighted assets and is expected to come down further with the application of Basle II from 2008.
However, Credit Suisse is maintaining its target of 10% Tier 1 Capital Ratio, which still places it amongst the best capitalised major banks.
Credit Suisse, headquartered in
