If there was ever any reason to wonder why Real Money launched its Stressed Out index, look no further than Credit Suisse (CS).
On Wednesday, the bank held a "strategy update call" to address updates to its plans to restructure the business and addressed challenges posed by its global markets business. Specifically it voiced concerns about its previous activities in distressed debt.
As a result of Credit Suisse's troubles, the bank said on the call that it will be scaling down its global markets presence, saying that fourth-quarter performance was "disappointing" and that it sees "continued pressure" in the first quarter. As of March 11, the bank said it has pre-tax losses of $820 million, which includes a goodwill impairment.
The bank also plans to lay off an additional 2,000 workers throughout the company, up from the 4,000 planned layoffs announced in February.
Drivers of the global markets business' troubles were positions in risky illiquid market segments, negative operational leverage and external factors such as central bank policy, low liquidity and high volatility, CEO Tidjane Thiam said on Wednesday's call.
To mitigate future problems, the bank will be exiting the following activities: distressed credit and European securitized products trading. Several other activities in its credit department are under review. Management said on Wednesday's call that exiting distressed credit may take some time but it has reduced its exposure by 28% to $2.1 billion as of March 11, from $2.9 billion as of the fourth quarter.
"Developments in the distressed book were a surprise," Thiam said. "Clearly something didn't go right there or something went wrong." Thiam later added that the problems in fixed income were due to an "attitude to risk that has to change" and that the bank has a "new risk appetite."
If a global bank can be hurt by investing in distressed companies, individual investors could expect to fare worse.
For more on Real Money's 20 distressed companies to watch: