Credit Suisse stung by insurance

ZURICH, Switzerland (CNN) -- Credit Suisse Group, Switzerland's second-largest bank, suffered a bigger-than-expected loss in the second quarter as slumping stock markets hurt its insurance business.

It made a loss of 579 million Swiss francs ($386.8 million) in the three months to June 30 but analysts polled by Reuters had expected a loss of about 460 million francs.

Credit Suisse, revealing the figures on Wednesday, blamed the decline in profit on the falling value of investments held by its insurance businesses.

The company's third loss in the past 12 months could increase pressure on Chief Executive Lukus Muhlemann to step down. He has already decided to give up his position of chairman.

Muhlemann spent billions of francs expanding the operation by buying insurance and investment banking businesses. But falling stock markets have forced Credit Suisse to cut the value of its assets at insurer Winterthur and investors are now questioning its strategy of combining banking and insurance businesses.

"The lower equity market valuations in the second quarter had a very negative impact on the insurance units' results," Muhlemann said in a statement.

"Our main aim going forward is to restore the earnings strength of the insurance business."

The bank said weak equity markets had a negative impact of as much as 1.5 billion francs on earnings, compared with the second quarter a year earlier. Credit Suisse has already pumped 1.75 billion francs into its Winterthur insurance business to make the sure it remains solvent.

Chief Financial Officer Phil Ryan told Reuters the company would inject more money into the insurance business if necessary.

"We will have to put some capital into Winterthur, we're in the process of deciding how much and how to do it.

"We continue to expect a loss-making quarter for the insurance (business) in the third quarter, unless we see some robust rally in equity markets which looks unlikely right now."

Credit Suisse was also forced to write down the value of its stake in insurer Swiss Life, in which it has a near 7 percent holding, by 192 million francs.

Its investment banking arm Credit Suisse First Boston (CSFB) reported a net profit of $61 million from a net loss of $19 million in the previous quarter, but was still down more than 50 percent on the second quarter of 2001.

Under the stewardship of CEO John Mack, CSFB has drastically cut costs through job losses and reduced bonuses.

Credit Suisse "expects the market environment to remain challenging in the second half of the year" with "negative insurance results in the third and the fourth quarter of 2002."

The company has seen its stock fall about 55 percent this year and has been the worst performer among it European peers amid concerns about its banking and insurance strategy.

Credit Suisse's bigger rival UBS said on Tuesday it was working to control costs. Managing the money of the world's richest people had limited its decline in profit by 4 percent to 1.331 billion Swiss francs.