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Rating Action:

Moody's affirms Credit Suisse ratings, changes outlook to negative

05 Dec 2008
Moody's affirms Credit Suisse ratings, changes outlook to negative

New York, December 05, 2008 -- Moody's Investors Service today affirmed the long and short-term ratings of Credit Suisse (deposits and senior debt at Aa1/P-1, bank financial strength rating at B) - the principal banking subsidiary of Credit Suisse Group - as well as affirming the ratings of Credit Suisse Group (senior debt at Aa2/ P-1) and its other subsidiaries. At the same time, the rating agency changed its rating outlook on Credit Suisse Group and most of its subsidiaries to negative from stable. The rating outlook for Banco Credit Suisse Mexico, S.A. (foreign currency deposits at Baa1/P-2, bank financial strength rating at D+) remains stable.

The rating action follows Credit Suisse's announcement that it had a net loss of approximately CHF3 billion during October and November, reflecting a significant pre-tax loss in its Investment Banking division due to challenging market conditions. Credit Suisse also announced that it intends to accelerate its plans to further reduce risk positions and volatility in the Investment Bank business, including an exit from certain proprietary and principal trading activities as well as certain origination activities. In connection with this the bank has announced plans to lower costs by reducing its headcount by approximately 11%, with most of the reduction relating to the Investment Bank.

Moody's said that the quarter-to-date loss reveals a degree of earnings volatility inconsistent with Credit Suisse's current ratings. With a BFSR of B and deposits rated Aa1, Credit Suisse is one of the higher rated firms among those large banks and securities firms with a significant concentration in capital markets activities. Moody's believes that Credit Suisse has managed through the credit crisis more effectively than many of its peers through a combination of good risk management and rapid reduction of risk concentrations, supported by the strong and stable earnings contribution of its Private Banking business. However, the bank's substantial losses on proprietary trading since mid-year, together with further markdowns on its remaining portfolio of illiquid risk assets, highlight a significant risk appetite and over reliance on hedging and diversification strategies which have proven ineffective in the current market environment. The resulting earnings volatility is a concern not only because of the increased risk of losses, but also because of the potential impact such earnings volatility could have on Credit Suisse's Private Banking business. Although client flows in Private Banking are generally stable, and have demonstrated strong performance at Credit Suisse over the past year, Moody's believes customer confidence in this business could nonetheless be impaired were the bank to suffer an extended period of losses or negative publicity.

Going forward, Moody's will focus on the future earnings and risk profile of Credit Suisse under its revised Investment Bank strategy, and more importantly the permanence of that strategy. "The steps Credit Suisse announced today, if successful, could lead to a less volatile earnings profile that still generates risk-adjusted returns consistent with the bank's current ratings," said David Fanger, Senior Vice President and Moody's lead analyst on Credit Suisse. "However, implementing this strategy successfully may be challenging in the current environment. In addition, even if successful over the near-term, the bank is likely to face pressures to return to a more aggressive strategy in the future, when market conditions improve." The negative outlook reflects the risks posed to the rating if the bank's risk reduction strategy is not successful.

Moody's noted that Credit Suisse's credit profile continues to be supported by a strong liquidity and capital position, as well as the more stable earnings profile of its Private Banking and Swiss businesses. The bank announced that it expects to have a tier 1 ratio of around 13% at year-end, which is higher than many of its peers.

The last rating action was on October 17, 2008 when the ratings of Credit Suisse Group and subsidiaries were affirmed.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Credit Suisse Group reported consolidated assets of CHF 1,394 billion and shareholders' equity of CHF 39.0 billion as of September 30, 2008 and is headquartered in Zurich, Switzerland.

New York
David Fanger
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

London
Elisabeth Rudman
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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