Wednesday, April 23, 2008

Problems in the Financial Sector Aren't Over

From Bloomberg:

Credit Suisse Group, Switzerland's second-biggest bank, may report the first quarterly loss in almost five years on writedowns linked to deteriorating credit markets and securities that had been intentionally mispriced.

Credit Suisse will probably post a first-quarter net loss of 594 million Swiss francs ($593 million) tomorrow, compared with a 2.73 billion-franc profit a year earlier, according to the median estimate of 14 analysts surveyed by Bloomberg. Markdowns by the Zurich-based bank may amount to 5 billion francs, analysts said.

Chief Executive Officer Brady Dougan announced on March 20 that the bank would probably have a loss after ``a small group'' of traders mispriced securities and credit markets worsened. The company's losses have been dwarfed by UBS AG, its larger Swiss rival, which said on April 1 it probably lost about 12 billion francs in the first three months of the year.

``The bank hasn't covered itself in glory but it's certainly not the worst performer,'' said Matthew Clark, an analyst at Keefe Bruyette & Woods in London with a ``market perform'' rating on Credit Suisse. ``They're facing revenue headwinds but the franchise shouldn't be too much damaged by writedowns.''

Please --- a "small group of traders" is responsible for this? That's pure spin, nothing more. The company -- like everybody else on Wall Street -- owns a lot of crap paper. That crap paper's underlying value is dropping fast because it's backed by crap mortgages. There's nothing more complicated about it than that.

From Bloomberg:

HVB Group, UniCredit SpA's German banking unit, said it expects ``significant'' losses related to the credit crisis in the first quarter.

``We expect significant valuation adjustments on our securities portfolio in the first quarter as credit spreads clearly worsened since the beginning of the year,'' Chief Executive Officer Wolfgang Sprissler said at a press briefing in Munich late yesterday. He declined to be more specific. His comments were confirmed by HVB spokeswoman Claudia Bresgen.

Translation: if you trade out stock, there's a big speed bump coming up....

On Monday, I wrote about last week's financial company earnings which showed widening losses, more writedowns and increasing loan-loss provisions.

Bottom line: this isn't over by a long shot.