Credit Suisse Back in Black - TheStreet

Credit Suisse Back in Black

The Swiss bank swung to a sequential profit and shares rallied.
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Credit Suisse

(CS) - Get Report

shares rose as much as 6% Thursday, after the Swiss bank reported profits slipped 62% from a year ago in the second-quarter, but returned to profitability after a big loss in the prior period.

The Zurich-based bank reported net income of 1,215 million Swiss francs, a big drop from last year's 3,189 Swiss francs, but a nice gain over the first quarter's loss of 2,148 Swiss francs. Diluted earnings per share came in at 1.12 versus 2.82 for the previous year, but again recovering from the first quarter loss of 2.10.

Credit Suisse has managed to survive the current financial market crisis much better than fellow Swiss bank


(UBS) - Get Report

. It had less exposure to risky financial instruments and quickly reduced its portfolio of such instruments.

"We continued to reduce our risk positions, as we have done since the early stages of the credit crisis," CEO Brady Dougan said in a company statement. "Our conservative funding structure and our position as one of the world's best capitalized banks remain competitive advantages.

Shares recently were rising 3.9% to $49.83.

The bank's capital ratio of 10.2% is better than some of its peers, as it has not resorted to a dilutive capital raise and has built a strong dividend. While better than the first quarter of 2008, the capital ratio is below the13% reported in the second quarter last year.

Switzerland's second-largest bank continued to reduce exposure to toxic instruments as it trimmed its commercial mortgage exposure by 22% and cut its leveraged finance holdings by 31% during the second quarter.

Credit Suisse dismissed its 22 million Swiss francs, or $21.3 million, in writedowns as "immaterial." Its provision for credit losses skyrocketed 456% to 50 million Swiss francs from last year's 9 million, but down from the 2008 first quarter figure of 156 million.

Net revenues were 7,830 million Swiss francs, up 159% from the first quarter of 2008, but down 33% from the second quarter of 2007. There were many positive pieces of business to glean from the quarter such as a return to profitability for the investment banking segment and the asset management group. Private banking recorded net new assets of 17.4 billion Swiss francs, including net new assets of 15.4 billion Swiss francs in the wealth management business. Fixed income and equity trading declined for the second quarter.

Analysts had not received much guidance from Credit Suisse leaving many to speculate as to what the quarter would bring.

"While we think

Credit Suisse has continued to avoid major writedowns from structured finance, it may have been exposed to basis risk on hedges, as well as could have run down its leveraged loan exposure, so the investment banking unit may still post a loss," Standard & Poor's Derek Chambers wrote. He reduced his price target by $6 to $48. "While this offers upside from current prices, we would not add to positions in view of current uncertainties."

Rival UBS has not fared as well with its share value plummeting 59.9% over the past 12months. UBS took on a heavy load of toxic bonds and has paid a severe penalty for it. It is expected to report its second quarter on Aug. 12 and analysts polled by Thomson Reuters expect a loss of $1.09 a share.


Deutsche Bank

(DB) - Get Report

has also given back 32.6% of its share value for the year and is expected to report its earnings next week.