Credit Suisse's fourth-quarter earnings confirmed the picture of a tough end to last year -- particularly within investment banking -- with a loss on the high side of expectations of SFr6 billion ($5.2 billion) in the final three months, leading to a full-year shortfall of SFr8.2 billion ($7 billion). The fourth quarter loss was more than four times as large as the third quarter loss of SFr1.3 billion and compared with a SFr540 million profit in the fourth quarter of 2007 and a profit of SFr7.8 billion for 2007 as a whole.

However, the market has chosen to put more focus on the bank's improving financial position, the resilience of its private banking business and the positive start to 2009 -- pushing the share price slightly higher in European trading.

"While our full-year results are clearly disappointing, we entered 2009 with a very strong capital position, a robust business model, a clear strategy and well-positioned business," Credit Suisse's CEO Brady Dougan said in a statement. And in a business update that matched, almost word for word, that made by UBS the previous day, he added: "We have had a strong start to 2009 and are profitable across all divisions year-to-date."

In a conference call a couple of hours later he noted, however, that this was not a "light at the end of the tunnel" message.

The investment banking division posted a full-year pre-tax loss of SFr14.2 billion from continuing operations, compared with a Sfr3.6 billion profit in 2007. Sfr7.8 billion of last year's losses came in the fourth quarter as the market disruption intensified. Specifically, Credit Suisse said it incurred significant losses in December due to standard hedges becoming ineffective as index-hedge positions rallied and cash markets depreciated. It also suffered a sharp decline in fair value levels of credit instruments across most markets due to a severe widening of credit spreads, and took combined net write-downs of SFr3.2 billion in its leveraged finance and structured products business.

The write-downs, together with trading losses within emerging markets and leveraged finance as well as losses associated with foreign exchange derivatives in Asia, dragged down the trading income on the fixed-income side, offsetting the record revenues from flow-based rate products and good revenues in the FX business. However, equity trading revenues also declined substantially due to significant losses in equity derivatives, convertibles, and long/short and event and risk arbitrage strategies.

Overall trading revenues were negative to the tune of Sfr6.7 billion in the fourth quarter and Sfr9.9 billion in 2008. This resulted in net revenues of minus Sfr4.5 billion across divisions in the fourth quarter. Net revenues for the full-year were positive, but at SFr9.3 billion they were down 76% from SFr39.33 billion in 2007. Net interest income increased slightly to SFr8.5 billion in 2008 from SFr8.4 billion the previous year, while commissions and fees declined by 22% to SFr14.8 billion.

The decline in primary market activity led to a 51% drop in underwriting and advisory fees to SFr2.7 billion in 2008. The sharpest decline came in debt underwriting, which saw fees drop 77% to SFr429 million. Equity underwriting experienced a 44% drop to SFr813 million, while advisory fees fell 34% to SFr1.5 billion.

The investment banking division accounted for 90% of the total fourth quarter loss and explains the urgency with which Credit Suisse announced in December that it would refocus the investment banking division towards less risky and less volatile areas such as client and flow trading businesses, and scale back its involvement in more complex products like exotic derivatives, collateralised debt obligations, hybrids and highly structured products. It was also to exit certain proprietary trading and principal trading activities altogether.

Yesterday, Credit Suisse said that it had reduced its exposure to illiquid leveraged finance and structured products assets by 53% in the fourth quarter and by 87% versus the end of the third quarter 2007. It has also reduced its risk-weighted assets by 15% since the end of the third quarter 2008 to $163 billion and expects to reduce this further to $135 billion by the end of 2009.

The revenue decline within investment banking was also partly offset by a 16% year-on-year reduction in operating expenses in the fourth quarter. Compensation and benefits, which fell 28%, accounted for most of the cost reduction. In December, Credit Suisse announced that its top three people -- chairman Walter Kielholz, CEO Brady Dougan and investment banking head Paul Calello -- had all decided not to take their bonuses for 2008 in light of the bank's performance.

Private banking, which includes wealth management and corporate & retail banking, was the only division to contribute positively to the bottom line -- both in the fourth quarter and for the full year. Net revenues for the division declined by 5% to SFr12.9 billion in 2008, while profit before taxes fell 23% to SFr4.2 billion. The latter included a record pre-tax profit of SFr1.8 billion from the corporate & retail banking business -- a 9% gain from 2007. Especially encouraging, though, was the fact that the bank attracted net new assets in each of the four quarters last year.

In the fourth quarter, the net new assets amounted to only Sfr2 billion after the net inflow of Sfr13.8 billion was partially offset by a deleveraging of client portfolios to the tune or Sfr11.8 billion. Still, the numbers confirm anecdotal evidence suggesting that clients have been shifting assets away from banks with less solid balance sheets, favouring those with relatively less exposure to subprime-linked instruments and other risky and illiquid assets. Credit Suisse's net new assets of SFr 50.9 billion for 2008 as a whole (a modest decline from SFr53.5 billion in 2007) contrasts sharply with
the SFr123 billion decline in net new money in UBS's wealth management business last year, and confirms that Credit Suisse has been a beneficiary of this trend.

Credit Suisse's asset management division saw net asset outflows of SFr21.1 billion in the fourth quarter and SFr63.3 billion in 2008. The division posted a 75% drop in net revenues to SFr496 million for the full-year and a loss before tax of SFr1.1 billion, including private equity and other investment-related losses of Sfr599 million in the fourth quarter. In 2007, it posted a small profit of SFr197 million.

Total assets under management, including both private banking and asset management, fell 24.4% to SFr1.1 trillion as of December 31, reflecting net asset outflows in asset management, the adverse market, foreign exchange movements as well as the closure of certain money market funds in the US.

Credit Suisse reiterated that its capital position remains strong after it raised $9.1 billion of equity capital in mid-October, with a year-end tier-1 ratio of 13.3%. In total, the bank raised SFr37.1 billion of long-term debt last year and expects to re-finance SFr12 billion in 2009.

The bank also noted that it is about half-way through its target, as announced in December, to reduce its global headcount by 5,300 people, or 11%, by the end of 2009. In the fourth quarter, the number of staff was cut by 2,500 people to 47,800. In the investment banking division, which according to the plan will account for 72% of the total cuts, 1,600 jobs were cut in the fourth quarter and a further 2,200 have been eliminated since the beginning of this year, meaning the target of 17,500 has already been reached.

Credit Suisse's share price fell as much as 8.3% shortly after the trading opened in Zurich, but quickly turned around and by the end of the session the stock was up 1% at Sfr31.20. The positive trend continued in the US where its ADRs gained 3.7%.