Credit Suisse Loss Forecast Revives Europe Bank Credit Concerns

Illiquid Positions Add to Credit Suisse Confusion

Credit Suisse Group AG’s forecast for a second straight quarterly loss, mainly because of trading operations, has stoked perceived credit risk at European banks.

Costs for insuring European lenders’ subordinated and senior bonds climbed to two-week highs on Thursday, based on Markit iTraxx indexes of credit-default swaps. Contracts tied to Deutsche Bank AG and UniCredit SpA have led increases in the past week.

Credit Suisse Chief Executive Officer Tidjane Thiam on Wednesday said the bank may post a first-quarter loss as it unwinds illiquid trading positions that management weren’t aware of. Citigroup Inc and JPMorgan Chase & Co. have also said that fixed-income and equity trading results will be disappointing in what is typically the industry’s strongest quarter.

“The profit warning from Credit Suisse on their trading activities is concerning,” said Matthew Rees, a portfolio manager at Legal & General Investment Management in London. “Deutsche Bank is in those areas as well so there is a read-across.”

The cost of insuring Deutsche Bank’s junior bonds has risen 52 basis points in the past week to 421 basis points, according to data compiled by Bloomberg. The Frankfurt-based lender has been at the center of concerns about European banks’ capital levels this year, causing credit-default swaps to more than double.

Swaps tied to Credit Suisse’s subordinated bonds have risen 14 basis points in a week to 181 basis points. The Swiss lender announced plans for another 2,000 job cuts.

Before it's here, it's on the Bloomberg Terminal.