Bloomberg: Credit Suisse topples UBS

I also read elsewhere that UBS's private banking operations are bleeding because clients have lost confidence in their risk management capabilities. What does this signal for UBS? Private banking is down, and investment banking is also down, not least because of the departure of Ken Moelis...


Feb. 11 (Bloomberg) -- Credit Suisse Group is earning more than UBS AG for the first time in almost a decade after Chief Executive Officer Brady Dougan avoided the writedowns that forced his rival to report the biggest-ever quarterly loss by a bank.

Credit Suisse may report tomorrow that net income fell 69 percent in the fourth quarter to 1.43 billion Swiss francs ($1.29 billion), according to the median estimate of 11 analysts surveyed by Bloomberg. UBS, which marked down $14 billion on securities infected by U.S. subprime mortgages, gives details of its 12.5 billion-franc quarterly loss on Feb. 14.

Dougan, a former derivatives trader who became Credit Suisse's CEO in May after making investment banking the company's most profitable unit, scaled back debt holdings before the slump led to more than $145 billion in writedowns and loan losses at the world's biggest banks. By contrast, Marcel Rohner was named UBS's CEO in July after three quarters of declining earnings, the collapse of a hedge fund and the ouster of his predecessor.

Credit Suisse is clearly the better positioned of the two,'' said Florian Esterer, who helps oversee $56 billion at Swisscanto Asset Management in Zurich, where both companies are based.There are still some tough times ahead for UBS.''

UBS, the world's biggest wealth manager, said Jan. 30 it had a net loss of 4.4 billion francs in 2007, the first time it earned less than Credit Suisse since being created in a merger in 1998. Credit Suisse, which posted losses in 2001 and 2002, had an 8.65 billion-franc profit last year, analysts estimate.

Wall Street Losses

Credit Suisse earned about 1 billion francs in the fourth quarter and 8.2 billion francs in 2007, Sonntag newspaper said Feb. 10, citing an unidentified ``reliable source.'' Credit Suisse spokesman Marc Dosch declined to comment on the report.

Like New York-based Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley, which also reported record losses in Wall Street's worst ever quarter, UBS has turned to sovereign funds to shore up its finances. The Swiss bank will seek shareholders' approval on Feb. 27 to sell 13 billion francs in bonds that will convert to shares to investors in Singapore and the Middle East.

Credit Suisse fell 1.7 percent to 56.1 francs in Zurich trading, and UBS dropped 3.1 percent to 39.74 francs. UBS has slumped 50 percent in the past year, making it the fourth-worst performer in the 60-member Bloomberg Europe Banks and Financial Services Index. Credit Suisse is down 36 percent.

UBS is rated ``sell'' by 11 of 41 analysts tracked by Bloomberg, a rating awarded by six of 37 analysts covering Credit Suisse.

`Dodged the Bullet'

``I think Credit Suisse will have dodged the subprime bullet,'' said Dieter Buchholz, who helps manage $107 billion at AIG Private Bank in Zurich, including Credit Suisse shares. Chairman Walter Kielholz has signaled the bank probably won't have large charges in the quarter.

Credit Suisse's results may be more similar to those of Frankfurt-based Deutsche Bank AG than UBS, Buchholz said. Germany's biggest bank said last week it avoided writedowns from the subprime market and reported a 44 million-euro ($64 million) markdown on leveraged loans.

Managers at Credit Suisse's SPS mortgage-servicing unit alerted the executive board more than a year ago to concerns about subprime assets. By the end of 2006, the company had originated about 40 percent fewer subprime mortgages than in 2005, according to Dougan.

The hardest thing in all of these is not just seeing the issue but taking action,'' Dougan, 48, told business leaders in Zurich on Feb. 5.It's always very difficult to say no.''

Derivatives Experience

When Dougan joined Credit Suisse in Tokyo in 1990 he helped set up a derivatives unit under Allen Wheat. Derivatives are financial contracts whose value is derived from debt or equity securities, currencies and commodities. Three years later, he became co-head of bond underwriting and origination in New York, before turning around the flagging equities unit, generating pretax profit of $1 billion before bonuses by 2000.

Credit Suisse's net third-quarter debt writedowns amounted to 2.2 billion francs. The bank, which reported a profit on subprime, said in November it had ``de minimis'' holdings left.

By contrast, UBS still held $29 billion of subprime-linked assets at the end of November. Rohner, 43, and Chairman Marcel Ospel told investors in December the positions were created ``by a small group of people in one team.''

To be sure, Credit Suisse may be holding about $7.4 billion of commercial mortgage-backed securities, said JPMorgan Chase & Co. analyst Kian Abouhossein. He estimated the bank may need to mark down about $700 million on the bonds in the fourth quarter.

Private-Banking Laggard

Credit Suisse's investment bank may be more resilient as demand for trading and financing slows. It spent 68 cents of every dollar of revenue in the first half of 2007, compared with UBS's 71 percent cost-to-income ratio. Rohner has cut 1,500 jobs at UBS's securities division since taking over direct control in October. Dougan, who ran the unit at Credit Suisse for three years, is cutting about 500 jobs.

``UBS's investment bank is suffering a broader loss of revenue momentum against a backdrop of greatly increased headcount and management departures,'' Citigroup analysts Jeremy Sigee and Kiri Vijayarajah wrote to clients on Feb. 4.

Credit Suisse is still behind in managing money for wealthy clients, attracting 38.2 billion francs in net new money in the first nine months, compared with UBS's 120.2 billion francs. The company plans to hire 1,000 more advisers through 2010 and is investing in the U.S., Singapore and Hong Kong.

Credit Suisse has already pushed ahead of its large rival in terms of investment banking,'' Bear Stearns analyst Christopher Wheeler said.They should be kicking ahead'' in private banking, too, he said.

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