The latest banking shock probably shouldn’t be so shocking. Credit Suisse Group nevertheless jolted investors into a rapid 10% sell-off of the Swiss bank’s shares on Tuesday by announcing a first-quarter profit hit of $1 billion (Rs3,990 crore).
Credit Suisse blamed traders for making silly mistakes valuing and pricing exposure to mortgage-backed securities. In the ongoing credit turmoil, such errors have become all too common.
UBS AG’s would-be kitchen sinks have proved a repeat shock occurrence. Société Générale unearthed a shocking rogue trader. Merrill Lynch and Co. Inc. and Citigroup Inc. have gone cap in hand to sovereign wealth funds—twice, shockingly enough. These shocks continue to electrify the markets. All Credit Suisse has done is reinforce the notion that the only certainty these days is uncertainty.
Credit Suisse also may ultimately be able to defuse the situation. After all, if these fresh write-downs, which amount to 50% more than the 2007 total, had been disclosed last week with its respectable fourth quarter results, they wouldn’t have been especially hair-raising. But given uncertainty’s reign, there’s no guarantee they are the last structured credit “mismarkings” at Credit Suisse.
It also may need to restate last year’s results.
Credit Suisse has shown itself to be that much less resistant to the market volatility than it first conveyed. But its quick disclosure ought to provide some modicum of comfort. The catalyst for coming clean may have been a planned $2 billion bond issue.
But it keeps with the bank’s apparent new commitment to transparency. That should mean that investors might reasonably expect timely and open disclosure about future write-downs.
No one should be shocked if there are more.