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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Credit Suisse pricing errors cost $1 billion

Frank Jordans Associated Press

GENEVA – After seeming to have skirted the worst of the mortgage issues plaguing the financial sector, Credit Suisse revealed Tuesday that it had suspended a “handful” of traders for overvaluing assets and would take a $1 billion hit to its first-quarter results.

Switzerland’s second-largest bank said it would still post a profit for the period, but the mispricing of asset-backed securities led to an overvaluation of about $2.85 billion.

Traders didn’t update their figures to keep up with the market downturn, and this tardiness resulted in assets being marked higher than their actual value, Credit Suisse chief executive Brady Dougan said during a conference call.

Several traders are being investigated, but an outright fraud had not been detected, he said.

“There are no discrepancies around positions,” Dougan said, adding that the circumstances were still under review. The bank earlier said a “small number” of traders had committed “mismarkings and pricing errors.”

The news comes a week after Credit Suisse posted solid fourth-quarter results that defied the industrywide gloom stemming from the fallout of the U.S. subprime crisis, and a month after French bank Societe Generale SA said a futures trader racked up losses of more than $7 billion before being found out.

Credit Suisse shares tumbled nearly 7 percent to close at $48.28.

In reporting its fourth-quarter results last week, Credit Suisse said it was taking a $1.88 billion write-down for subprime-related assets in that period, but still posted a net profit of $1.2 billion.

The charges were small compared with those at UBS, which wrote down $13.7 billion in mortgage-related investments last year and reported its first full-year loss.

But Credit Suisse warned that last year’s results may still be affected by the overvalutions, which were discovered during an internal probe into how its traders marked the value of products such as commercial mortgage-backed securities, residential mortgage-backed securities, and collateralized debt obligations, or CDOs.

“The final determination of these reductions will depend on further results of our review and continuing market developments,” the bank said.