Nov. 1 (Bloomberg) -- Credit Suisse Group, Switzerland's second-largest bank, said it's ``too early to predict'' an end to the credit-market swings that caused $1.9 billion of writedowns and the first profit decline in a year.

Net income fell 31 percent to 1.3 billion Swiss francs ($1.1 billion), or 1.18 francs a share, in the third quarter, the Zurich-based bank said today. Credit Suisse stock fell to the lowest in a year, pulling European bank shares lower.

Chief Executive Officer Brady Dougan, who succeeded Oswald Gruebel six months ago, said ``extreme market conditions'' sparked by record U.S. home foreclosures forced the company to write down fixed-income securities and leveraged loans. UBS AG, the biggest Swiss bank, announced its first quarterly loss since 2002 after erasing $4.4 billion from the value of bond holdings.

Debt-market volatility ``will continue to hang over us like a Damocles sword,'' said Dieter Winet, a fund manager who helps oversee $50 billion, including Credit Suisse shares, at Swissscanto Asset Management in Zurich. ``We don't know whether the money will return.''

The stock fell 3.7 percent to 75 francs in Zurich. Credit Suisse has fallen 12 percent this year, compared with a 20 percent decline for UBS, Europe's biggest bank by assets. Deutsche Bank AG, Germany's largest bank, has declined 12 percent in Frankfurt.

`Pull-Back'

Net income beat the 1.28 billion-franc median estimate of eight analysts surveyed by Bloomberg, buoyed by earnings from managing money for wealthy clients and a 315 million-franc tax gain. The bank earned 1.89 billion francs, or 1.67 francs a share, a year earlier.

Profit from continuing operations fell 11 percent to 1.3 billion francs from 1.47 billion francs a year ago. On Oct. 1, the bank forecast profit of between 1.04 billion francs and 1.56 billion francs. The bank sold its Winterthur insurance unit to Axa SA in the fourth quarter last year.

Pretax earnings at the securities unit, headed by Paul Calello slumped to 6 million francs from 758 million francs a year earlier, Credit Suisse said. At the main wealth-management unit, profit gained by 32 percent to 900 million francs. Earnings at the Swiss consumer bank rose 15 percent to 389 million francs, while the asset-management unit posted an 85 percent decline to 45 million francs from 158 million francs a year earlier.

The bank had a 300 million-franc loss from stock trading with its own money. It blamed quantitative trading strategies, which use mathematical models to pick investments.

`Encouraging Signs'

``The extreme market conditions that characterized the third quarter affected many of our businesses,'' Dougan, 48, said in today's statement. ``We are seeing encouraging signs that activity in the credit markets is increasing although it is too early to predict when all of the affected markets will return to more normal levels.''

Deutsche Bank Chief Financial Officer Anthony di Iorio said yesterday the fourth quarter started ``very positively'' with an improvement in some of the businesses that fared worst in the previous three months, such as credit and proprietary trading.

Credit Suisse said its structured-products business, including residential and commercial mortgages and collateralized debt obligations, recorded a cut in valuations of 1.1 billion francs, net of fees and hedges.

The bank also wrote down 1.1 billion francs on leveraged loan commitments. It had 60 billion francs in ``funded and unfunded'' assignments at the end of September, CFO Renato Fassbind said on a call with reporters today.

`Investment-Banking Horrors'

The size of the writedowns is equal to about 5.2 percent of the company's 42 billion francs in shareholders' equity, or assets minus liabilities.

``We've been led to expect horrors in investment banking and we weren't disappointed,'' said Peter Thorne, an analyst at Helvea SA in London. ``It doesn't seem that they have too many problems going forward though.''

Credit Suisse, which said a month ago it would cut about 320 jobs at the securities unit, ``will always adjust our workforce to the market situation,'' Fassbind said today. While revenue fell 15 percent to 6.8 billion francs, the bank cut personnel expenses by 30 percent to 2.4 billion francs. The number of employees rose 6 percent to 47,200.

UBS posted a net loss of 830 million francs for the third quarter earlier this week and CEO Marcel Rohner said it's unlikely the securities unit will return to profit this year. The company took a writedown of $260 million on about $12.9 billion of loans to fund LBOs.

Merrill Ouster

Deutsche Bank said yesterday profit rose 31 percent as tax credits and gains from asset sales outweighed the first loss at the securities unit in five years. The bank had 2.16 billion euros ($3.1 billion) in writedowns and trading losses.

New York-based Merrill Lynch & Co. reported the biggest loss in its 93-year history last week on $8.4 billion of writedowns, leading to the ouster of CEO Stan O'Neal. The writedown, the biggest of any Wall Street firm, was equivalent to about 20 percent of shareholders' equity.

Credit Suisse has said it foresaw increasing defaults on housing loans to less creditworthy borrowers in the U.S. The subprime business accounted for about 2 percent of investment- banking revenue, or about 1 percent of group revenue, Fassbind said Aug. 2. Fixed income accounted for half of investment banking revenue last year.

Private Banking `Disappointing'

Credit turmoil also affected the ``confidence and risk appetite'' of clients at Credit Suisse's wealth management operation, Fassbind said. The division, which charges fees on assets managed for customers with at least $1 million to invest, typically accounts for about 20 percent of total revenue.

``Private banking was disappointing compared with UBS,'' said Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co..

Headed by Walter Berchtold, the unit attracted 9.7 billion francs in net new money during the three months through September, the second-smallest gain in seven quarters. UBS, the world's biggest wealth manager, attracted a record 35.1 billion francs in the same period.

The Morgan Stanley Capital International World Index, a gauge of 23 developed markets, rose for the eighth quarter in nine in the three months through September. Credit Suisse oversaw 1.57 trillion francs at the end of September, down from 1.63 trillion francs three months earlier.

The bank scrapped an advisory board, headed by former Swiss federal government minister Flavio Cotti, saying in a separate statement today that the body was ``no longer a sensible means of meeting the diverse requirements'' of the bank's global businesses.

To contact the reporter of this story: Jacob Greber in Zurich at jgreber@bloomberg.net

Last Updated: November 1, 2007 12:59 EDT