Citigroup Says Sell Credit Suisse Puts, Buy Deutsche Bank Puts

By Gareth Gore

July 11 (Bloomberg) -- Citigroup Inc. said clients should use put-option spreads on Credit Suisse Group and Deutsche Bank AG to bet that earnings at Switzerland's second-biggest bank will be better than those of its German rival.

The brokerage advised selling Credit Suisse put options expiring in December with a strike price of between 5 and 20 percent below the stock's ``current price.'' Clients should also buy puts on Deutsche Bank expiring in the same month and at a similar range of strike prices, it said.

Credit Suisse shares gained 0.6 percent to 43.28 Swiss francs as of 11:28 a.m. in Zurich. Deutsche Bank declined 1.1 percent to 53.72 euros today in Frankfurt.

``We expect Credit Suisse to show more resilient operating performance than Deutsche Bank and prefer Credit Suisse for its stronger balance sheet and attractive business mix,'' London- based analysts Kiri Vijayarajah and Stuart MacDonnell wrote in a note to clients dated today.

Option prices for the Zurich-based bank trade at a premium to those for Deutsche, the bank said, creating opportunity for profit. The put-spread strategy will be profitable as long as Credit Suisse shares outperform or match those of Deutsche Bank, according to Citigroup calculations.

Put options give the buyer the right -- but not the obligation -- to sell shares at a pre-agreed price on a set date. By selling a put option, the investor is taking the bet the contract won't be exercised, allowing him to keep the premium paid for the option.

`More Conservative'

Deutsche Bank reported its first quarterly loss in five years in April after writing down loans for leveraged buyouts and asset-backed securities by 2.7 billion euros ($4.2 billion). Last week, Anshu Jain, head of global markets at the bank, said the contagion triggered by the U.S. subprime mortgage is ``by no means over.''

In April, Credit Suisse said it was cutting 500 jobs in investment banking and administration after earnings fell for a third straight quarter.

``On markdowns, Credit Suisse seems to have taken a more conservative approach to the valuation of risky assets,'' the Citigroup note said.

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To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net