After reporting an improvement in business over the last six months,

Credit Suisse First Boston

disappointed investors Wednesday with a warning that it expects to post an operating loss in the third quarter.

CSFB's parent company,

Credit Suisse Group


, said the investment banking unit will record an unspecified loss "mainly as a result of lower revenues and further provisioning, reflecting the current environment." The firm said more detailed results would be released on Nov. 14.

Over the last year, CSFB Chief Executive John Mack has implemented aggressive cost cuts and has slashed some 4,500 jobs, or 15% of his staff, in an attempt to restore the firm to profitability. The moves helped CSFB post earnings of $61 million in the second quarter following a loss of $19 million in the first quarter and a $939 million loss in the fourth quarter of last year.

But market conditions in the U.S. proved to be extremely harsh in the third quarter, affecting all the major Wall Street firms.

Goldman Sachs

(GS) - Get Report

endured a 41% decline in investment banking revenue from the year-ago period but nonetheless managed to show growth in earnings.

Lehman Brothers


wasn't so lucky, posting a 37% drop in earnings because of less profitable bond trading and evaporating investment banking revenue. Likewise,

Morgan Stanley


saw a drop in earnings and said the quarter had been far worse than anyone at the firm had expected.

In August, CSFB said credit provisions rose 18% amid concerns that more companies would default on loans. It also said costs for discontinued real-estate loans rose "substantially" in the second quarter.

CSFB contributed 12% to its parent's earnings last year.

As for Credit Suisse Group, it will also post a loss in the third quarter due to weakness in the investment banking unit as well as losses in its insurance business. The firm said it would inject another 2 billion Swiss francs, or $1.3 billion, into its Winterthur insurance subsidiary to ensure that the company has the necessary levels of capital as required by Swiss regulators.

In response to the weak performance at Credit Suisse Group, the firm announced last month that it would replace CEO Lukas Muehlemann. John Mack and Oswald Grubal will take over as co-CEOs as of Jan. 1, 2003.

The disappointing results at CSFB couldn't have come at a worse time for the company. The firm is currently being investigated by Massachusetts securities regulators for potential conflicts of interest between analysts and investment bankers. These regulators have also asked New York Attorney General Eliot Spitzer to assist them in pursuing possible criminal or civil charges against the Wall Street firm. CSFB has also come under fire for its policies on allocating shares in hot initial public offerings.

The government has been examining whether investment banks doled out shares in big IPOs to corporate executives as part of an incentive program to win corporate investment banking work. Last winter, CSFB paid a $100 million fine to the Justice Department to settle charges that the firm had demanded inflated commissions from money managers who were seeking to buy shares in some hot technology IPOs.