July 24 (Bloomberg) -- Credit Suisse Group AG reported the smallest writedowns on Wall Street and said earnings dropped 62 percent, less than analysts estimated, as the securities unit returned to profit and wealth management attracted the most new assets in two years.

The second-biggest Swiss bank rose 5.3 percent in Zurich trading after reporting second-quarter net income of 1.22 billion francs ($1.18 billion), or 1.12 francs a share, compared with 3.19 billion francs, or 2.82 francs, a year earlier. Profit was almost double what analysts estimated.

Chief Executive Officer Brady Dougan cut leveraged loans and real estate assets by 68 percent over the past nine months to limit second-quarter writedowns to 22 million francs and said he will continue to manage the bank ``conservatively.'' Credit Suisse's wealth management unit got a net 15.4 billion francs in the quarter after the 48-year-old American stepped up hiring of money managers while larger Zurich rival UBS AG reels from the biggest subprime mortgage losses of any European bank.

``Management decisions have been far better at Credit Suisse,'' Ralph Silva, research director at Tower Group Plc in London, said in an interview. ``They're taking a considerable number of clients away from UBS.''

Credit Suisse rose 2.65 francs to 52.55 francs. The stock has lost 23 percent this year compared with the 51 percent slump at UBS, the sixth-biggest loser in the 71-member Bloomberg Europe Banks and Financial Services Index.

`Challenging'

``We anticipate that the current challenging market conditions will persist over the near to medium term and we will continue to manage our business conservatively,'' Dougan said today in the statement.

The investment bank reported a pretax profit of 281 million francs compared with 2.5 billion francs a year ago and a loss of 3.46 billion francs in the first quarter. Corporate and retail banking saw a 2.6 percent increase in pretax profit to 390 million francs. Profits at the wealth and asset management units fell 17 percent to 830 million francs and 44 percent to 167 million francs, respectively.

Credit Suisse wrote down the value of leveraged loans and commercial mortgage-backed securities by 86 million francs and 477 million francs, respectively, while booking gains on residential mortgage-backed securities and collateralized debt obligations of 33 million francs and 508 million francs. The bank said it had a fair-value loss of 503 million francs on its own debt as credit spreads narrowed.

Close to `Normal'

``I wouldn't say market prices have improved but we were rightly positioned in the quarter,'' Chief Financial Officer Renato Fassbind, 53, said on a conference call. The positions are now close to ``normal,'' and the bank accrued a ``significant'' dividend albeit below last year's level, he said.

Credit Suisse's Tier 1 capital ratio rose to 10.2 percent by the end of the second quarter from 9.8 percent at the end of March. Return on equity fell to 13 percent from 30 percent a year earlier.

The bank follows New York-based Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. in reporting a profit for the second quarter. Goldman wrote down $775 million in the period, Morgan Stanley $1.8 billion and JP Morgan $3.6 billion, data compiled by Bloomberg show. Citigroup Inc., the biggest U.S. bank by assets, had a net loss of $2.5 billion on writedowns of $11.7 billion.

Wall Street Rivals

UBS said earlier this month that earnings were ``at or slightly below break-even,'' including about 3 billion francs of tax credits. Deutsche Bank AG, Germany's biggest bank, may report a second-quarter net income of 518 million euros ($814 million) on July 31, according to the median estimate of 13 analysts surveyed by Bloomberg.

Subprime losses at UBS, which holds more assets for affluent clients than any other bank, and Merrill Lynch are helping private banks that haven't been hit as much. Growth in assets from affluent clients at UBS and Merrill slowed last year while smaller private banks saw stronger growth, according to an annual survey released last month by Scorpio Partnership.

Money inflows at Credit Suisse's wealth management unit were the highest since the second quarter of 2006 after the bank added 120 advisers in the past three months. Credit Suisse said in January that it aims to hire about 1,000 wealth management advisers through 2010.

U.S. Tax Probe

``Credit Suisse Group remains our preferred investment bank with a strong wealth management franchise with excellent net new money,'' JPMorgan analyst Kian Abouhossein said in a note to clients.

UBS lost 2.5 billion francs from wealthy clients in Switzerland in the first quarter, cutting total net new money from rich customers to 5.6 billion francs. The bank, which is a target in a U.S. probe into tax evasion by wealthy individuals, may see clients removing more than 10 billion francs from the main wealth management unit in the second quarter, according to estimates by Abouhoussein and Citigroup's Jeremy Sigee.

Credit Suisse got 41 percent of total revenue from wealth management in the first half of this year, up from 24 percent in 2007. UBS got 61 percent of revenue from its private-banking units last year.

Walter Berchtold, the 46-year-old head of private banking at Credit Suisse, said today that the bank is reassessing its business in the U.S. in light of the U.S. probe. UBS has said it will stop offshore-banking services to U.S. clients through non-U.S. branches.

``It doesn't mean we will stop offshore business with U.S. clients but we will reassess it,'' Berchtold said. The wealth manager's offshore business in the U.S. is ``relatively immaterial,'' he added.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

Last Updated: July 24, 2008 12:04 EDT