Financial consultancy Moody’s has left the ratings of Swiss banking major Credit Suisse Group unchanged despite massive writedowns.The bank (rated Aa2 for senior debt and deposits, Credit Suisse, the main operating bank, rated Aa1 for senior debt and deposits and B for financial strength, with a stable outlook for all ratings) has reported that the additional writedowns result partly from the intentional misconduct by a small number of traders and also a revision to the models used to value these CDO exposures. Procedures were in place to prevent such occurrences but were less than effective. Moody's greatest concern is that such a large discrepancy in valuations was able to remain undetected for an extended period, and we will continue to discuss with the management the robustness of risk controls and the remediation processes being implemented.
Nevertheless, Moody's has not changed the ratings of Credit Suisse and its subsidiaries as a result of this latest announcement. The size of the valuation adjustment can be absorbed within the bank's earnings and the Tier 1 ratio of 11.1% on a Basel I basis and approximately 10% on a Basel II basis, is still one of the highest ratios for large banks globally.
Credit Suisse has also cautioned that it is unlikely the full Q108 will be profitable, due to worsening market conditions particularly during March. Moody's notes that the recent market conditions have created a wide range of severe stresses for all financial institutions. Many of the largest banks, such as Credit Suisse, have well diversified revenue bases, which provide some buffer against the volatile market conditions, however we may see downward rating pressure on institutions where the core earnings have been weakened. (press release)