Zurich-based Credit Suisse has suffered an additional $2.85 billion in writedowns due to ‘mismarkings and pricing errors’ in structured credit products exposed to US subprime mortgages.In a statement released on February 19, the bank said the discrepancies, made by a group of its investment bank traders, were uncovered as a result of ongoing control processes. This led to a review of some of its assets, resulting in the latest writedown. The disclosure was made in connection with the closing of $2 billion worth of 5.75% subordinated notes due 2018, on February 19.
These revelations come just days after the bank announced a less than expected Sfr1.3 billion writedown on leveraged finance and structured debt and mortgage investments in the fourth quarter of 2007, signalling that it had managed to ride the wave of the credit crisis better than most of its competitors. The latest writedowns will cut the 2008 first-quarter profits by about $1 billion. The bank is still assessing the impact of these reductions on the 2007 results.
Banks continue to lose billions of dollars due to writedowns on assets exposed to US subprime debt. Losses of more than $145 billion have so far been reported, with estimates running as high as $400 billion.
The Financial Stability Forum (FSF), a committee of international bank regulators and finance ministries, recently called for the strengthening of the financial sector's risk management practices. In interim recommendations to the G-7, released on February 5, “to rebuild confidence in the creditworthiness and robustness of financial institutions”, the FSF said “this involves not only assessing firms’ risk management capacity but also the extent to which firms integrate their risk assessments into their overall decision making processes and controls”.
Credit Suisse has since suspended the traders involved in the mispricing, pending the review.
More on Structured Products
Total return would have beaten cash holdings or index trackers
Investors seeking returns from momentum strategies should know what’s under the hood
Product offered a fixed coupon of 4.75% and sizeable downside protection
Growth in strategies such as momentum is predicted to slow – but we aren't there yet
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.